For much of the last few years, United Continental (NASDAQ:UAL) was the "sick man" of the airline industry. Its profitability continually lagged behind that of Delta Air Lines (NYSE:DAL). United finally hit rock bottom in the first quarter of 2014, when it lost about half a billion dollars while Delta generated a record Q1 profit.

Delta has had a smoother ride than United in recent years.

United seemed to get back on track later in 2014 and was starting to close the profitability gap with rivals like Delta during 2015. However, the company cut its Q4 unit revenue guidance earlier this month. It still missed analysts' EPS estimates when it reported its final results last week. The Q1 unit revenue outlook was ugly, too. Is United falling behind again?

The margin gap widens
In 2015, Delta Air Lines posted an adjusted pre-tax profit of $5.9 billion on revenue of $40.7 billion. That works out to an adjusted pre-tax margin of 14.4%.

Meanwhile, United Continental's adjusted pre-tax profit reached $4.5 billion on revenue of $37.9 billion. That put its adjusted pre-tax margin at 11.9%. This margin gap of 2.5 percentage points was the smallest in several years and was quite respectable, even if part of it was caused by Delta's huge fuel hedging losses.

However, United projects that its first-quarter pre-tax margin will be between 8%-10%, as a 6%-8% decline in passenger unit revenue will offset most of its fuel cost savings. By contrast, Delta expects to generate an 18%-20% operating margin this quarter.

These figures aren't quite comparable, as operating income excludes interest expense but pre-tax profit includes that significant cost item. However, even on an apples-to-apples basis, Delta's Q1 profit margin is likely to outpace United's by about 8 percentage points. That's almost as bad for United as the disastrous Q1 2014 period.

It's not as bad as it looks
Extrapolating from United's first-quarter outlook to all of 2016 would paint a fairly bleak picture. However, management expects unit revenue trends to improve sequentially throughout the year as comparisons get easier and ongoing revenue-enhancing projects start to bear fruit.

United Airlines expects unit revenue trends to improve as 2016 progresses.

Additionally, United's business seems to be more seasonal than Delta's as a general rule -- probably due to its higher concentration of international flying -- and Q1 is always the weakest quarter of the year.

Fuel hedging losses are also likely to be significantly smaller for the rest of 2016 compared to the first quarter. Finally, looking further ahead, United has big upgauging plans that will kick in next year and drive additional unit cost reductions.

A solid margin of safety
It's reasonable for investors to be somewhat skeptical of United's projection that unit revenue trends will improve throughout 2016. After all, the carrier has missed its own targets more than once in the past few years.

Fortunately, there is a sizable margin of safety for investors here. United stock trades for less than six times forward earnings estimates. Furthermore, United's free cash flow is likely to be higher than its net income for the next two years because it is reporting taxes for accounting purposes but probably won't start incurring cash taxes until 2018.

United Continental plans to take advantage of its rock-bottom valuation by ramping up its share buyback program this year. Acting CFO Gerry Laderman said United will probably repurchase at least $750 million of stock in Q1. If United stock remains below $50, this will shrink the share count by more than 4% -- setting the stage for faster EPS growth and an eventual stock price recovery.