United Airlines troubles mostly wipe out 3Q profit
Friday, October 26, 2012
It was a rough third quarter for United Airlines.
Travelers stayed away, frustrated by technology glitches from United's merger with Continental. And a huge accounting charge wiped out most of its profit.
United's performance weakened by every measure important to airlines: Per-passenger revenue fell 2.6 percent, and was down in every part of the world except for the Pacific. Traffic fell 1.5 percent. Yield, which measures fares paid, slipped 1.2 percent.
Particularly damaging was the defection of corporate travelers, who booked elsewhere and hurt revenue.
"We recognize that some of our customers chose to fly other airlines during the summer, when our operational performance degraded," CEO Jeff Smisek said on a conference call. He said the airline has added more spare planes, is fixing its computer issues and expects customers to return.
Net income for United Continental Holdings Inc. dropped to $6 million, or 2 cents per share, from $653 million, or $1.69 per share, a year earlier.
Its most recent profit would have been bigger if not for a special charge for a preliminary agreement with its pilots. Excluding that , its profit of $1.35 per share was still 12 cents less than analysts expected, according to FactSet.
Revenue fell 2.6 percent to $9.91 billion, also below analysts' expectations.
By comparison Delta's passenger revenue rose 1 percent during the most recent quarter, and yield rose 3 percent. The rival airline posted a $1.05 billion profit, with an assist from hedges — bets on fuel prices that went its way.
United planned ahead for some of the traffic reduction by cutting flying capacity 1.4 percent. Airlines have been increasingly aggressive about shrinking capacity to keep the number of seats they offer in line with demand, so they can keep fares higher. It's cutting 2013 flying by 1 percent.
United booked a $454 million charge to cover future lump-sum payments to pilots anticipated under a preliminary deal reached in August. Smisek said United is "in the process of finalizing a tentative agreement" now. A joint pilot contract is key in an airline merger because without it, the airline has to schedule the two groups of pilots separately, which is costly and complex.
United also recorded $60 million in integration expenses for merging the two airlines. That money covered repainting planes, merging computer systems, and charges for getting rid of facilities that the combined airline no longer needs.
Shares of Chicago-based United fell $1.01, or 5 percent, to close at $19.26 Thursday.
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