Bloomberg News

United Joins Southwest Beating Estimates as Fuel Costs St

January 24, 2013

United Continental Holdings Inc. (UAL:US) and Southwest Airlines Co. (LUV:US) outperformed analysts’ bottom-line estimates in the fourth quarter amid steadying costs for fuel, their biggest expense.

United’s loss of 58 cents a share, excluding some items, was narrower than the 61-cent average projection. Southwest’s adjusted profit of 9 cents a share compared with an 8-cent estimate.

Fuel expenses offered a reprieve for the airlines, which have grappled with surging prices and higher labor costs simultaneously, while sluggish economic growth limited their pricing power. Southwest’s fuel-cost increase (LUV:US) narrowed to 0.7 percent, from 59 percent a year earlier. United’s fuel payments (UAL:US) fell 0.3 percent, compared with a 26 percent gain a year ago.

The beats “are fitting an industry pattern indicating it’s going to be a very strong year for the airlines,” Ray Neidl, an independent airline analyst based in Connecticut, said in an interview. “Unless something bad happens with the economy or oil prices shoot up, I think these trends are going to continue for the year.”

United climbed 2.2 percent to $25.54 at the close in New York, while Dallas-based Southwest advanced 0.8 percent to $11.45.

United, which became the world’s largest carrier after its merger with Continental Airlines, boosted frequent-flier miles sales, change fees and charges for checked bags to help mute the impact of lower ticket sales. Total revenue at the Chicago-based company fell 2.5 percent to $8.7 billion in the quarter, better than the $8.67 billion estimated by analysts.

Merger Integration

The carrier had $439 million in one-time costs during the quarter, most of it related to integrating the operations of United and Continental by repainting planes, training employees and paying relocation or severance for eliminated positions.

Including those items, United’s net loss was $620 million, or $1.87 a share, compared with a deficit of $138 million, or 42 cents, a year earlier.

United’s domestic on-time arrival rate was 80.1 percent for the fourth quarter, topping its goal and improving on 72.4 percent for the third quarter and 76.4 percent for the second quarter, when it suffered from chronic late flights and insufficient spare planes to fill in for those with mechanical malfunctions.

“With much of our integration behind us, our significantly improved operational performance and our increasing customer satisfaction, we can now go forward as one company,” Chief Executive Officer Jeff Smisek said in the statement.

Southwest Fees

Smisek pledged in October to run a reliable airline again and vowed to win back passengers who switched to other airlines because of United’s tardiness. The airline plans seating- capacity cuts of 4.1 percent to 5.1 percent this quarter.

Like United, Southwest is using fees to boost sales. The carrier expects to increase annual revenue by about $100 million in a departure from its stance of forgoing some charges that are standard for the industry. Sales in the fourth quarter rose 1.6 percent to $4.17 billion.

Profit excluding some items fell 1.5 percent to $65 million from $66 million, or 9 cents a share, a year earlier.

“These solid earnings were achieved despite significant efforts and costs related to critical strategic initiatives,” Chief Executive Officer Gary Kelly said in the statement.

Including $13 million in gains from special items, Southwest’s net income fell 49 percent to $78 million, or 11 cents a share, from $152 million, or 20 cents, a year earlier. The 2011 period included $86 million of gains from special items.

Labor Expenses

United, Southwest and Alaska Air Group Inc. (ALK:US) all grappled with rising labor costs, with increases of 4 percent, 4.5 percent and 6 percent respectively. Alaska was the only one of the three to lag behind estimates, and its adjusted profit of 70 cents a share missed by only a penny.

Revenue rose 8 percent to $1.13 billion as the Seattle- based carrier added new service from San Diego to Orlando and from Anchorage to Kona. The carrier sought new revenue on routes with little competition and boosted regional flying.

Including $10 million in losses on fuel hedges, Alaska Air’s net income slid 31 percent to $44 million, or 61 cents a share, from $64 million, or 88 cents, a year earlier. Its total fuel bill surged 30 percent to $372 million.

Shares in the airline dropped 0.6 percent to $46.39.

To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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Companies Mentioned

  • UAL
    (United Continental Holdings Inc)
    • $64.25 USD
    • 1.40
    • 2.18%
  • LUV
    (Southwest Airlines Co)
    • $40.62 USD
    • 0.50
    • 1.23%
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