Wings Magazine

Tough third quarter for United Airlines

Oct. 25, 2012, Chicago, Il. - It was a rough third quarter for United Airlines.

October 25, 2012  By Carey Fredericks

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 per cent, and was down in
every part of the world except for the Pacific. Traffic fell 1.5 per cent. Yield, which measures fares paid, slipped 1.2 per cent.

Particularly damaging was the defection of corporate travellers, 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 per cent to $9.91 billion, also below analysts' expectations.

By comparison Delta's passenger revenue rose 1 per cent during the most recent quarter, and yield rose 3 per cent. 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 per cent. 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 per cent.

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.


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