United Continental Holdings Inc. (UAL:US) fell the most since October 2011 after posting the only first-quarter loss among major U.S. carriers, hampered by severe winter weather that trimmed results by $200 million.
Competitors made money last quarter as they kept costs in check while grappling with the storms. American Airlines Group Inc. (AAL:US), the world’s biggest airline, reported its largest-ever first-quarter profit, and Southwest Airlines Co. said earnings excluding some items also set a record for the period.
United’s struggles to reap the benefits of its 2010 merger with Continental Airlines contrasted with the performance of American and Delta Air Lines Inc. Those two carriers both have benefited from consolidation that has shrunk the U.S. industry from six major airlines to three in the past decade, said Robert Mann, an aviation consultant.
“The analyst industry is kind of losing faith in United’s grasp of strategy and execution,” said Mann, who heads R.W. Mann & Co. in Port Washington, New York. “I just sense there’s little confidence they can run an on-time and competitive airline.”
United tumbled 9.8 percent to $41.53 at the close in New York, dragging the 11-carrier Bloomberg U.S. Airlines Index to a drop of 1.6 percent. The slide also erased more than half the stock’s year-to-date gain, leaving the shares with a 9.8 percent advance.
While United’s 32 percent gain in the past year beat equity benchmarks (UAL:US) such as the Russell 1000 Index, the company trailed peers such as Delta, which more than doubled in that span. American has gained 51 percent since closing on the US Airways merger on Dec. 9, almost five times as much as United’s rally.
The loss of $489 million, or $1.33 a share, excluding some items, widened from a loss of $358 million, or $1.08, a year earlier, Chicago-based United said today. That was narrower than the $1.36 average of 16 estimates compiled by Bloomberg. Sales fell 0.3 percent to $8.7 billion.
“This quarter’s financial performance is well below what we can and should achieve,” Chief Executive Officer Jeff Smisek said in a statement. “We are taking the appropriate steps with our operations, network, service and product to deliver significantly better financial results.”
A series of storms pummeled the central and eastern U.S. in January and February, affecting United hubs in Chicago and Newark, New Jersey. United was forced to ground 35,000 flights, reducing the number of passengers flown by 1.4 percent.
“Everybody likes to blame the storms, but there are storms every year,” said Roger King, senior transportation analyst with CreditSights Inc., based in New York. “It’s not an excuse. It seems like they’re lagging on growth and fares.”
United, now working to cut $2 billion in annual costs by 2017, was hampered by sluggish revenue. International sales were “ugly across the board,” Kevin Crissey, an analyst at Mahwah, New Jersey-based Skyline Research LLC wrote in a research note. Revenue for each seat flown a mile, an industry benchmark, declined in the three major geographic segments -- across the Atlantic and Pacific and to Latin America.
American, which claimed the title of world’s largest carrier from United last year, reported adjusted profit of $402 million, or 54 cents a share, in its first full quarter since merging with US Airways. Analysts projected earnings on that basis of 48 cents a share, based on the average of 14 estimates compiled by Bloomberg.
“In the entire history of American Airlines, we have never earned $400 million in the first three months of a year, but in the first three months since the merger, we did,” CEO Doug Parker said in a message to employees today.
The carrier, with hubs in Chicago and New York, was also buffeted by one of the worst winters on record in those regions. The weather reduced revenue for the Fort Worth, Texas-based airline by $115 million and net operating profit by $60 million.
American ended the quarter with $10.6 billion in cash and short-term investments. Those reserves were bolstered after the company received $381 million for the sale of takeoff and landing slots at Ronald Reagan Washington National Airport and New York’s LaGuardia Airport required by the U.S. Justice Department as a condition of its approval of the merger.
JetBlue Airways Corp., whose main hub at New York’s John F. Kennedy International Airport was also pounded by the adverse weather, reported net income of $4 million, or 1 cent a share. It fell short of the average 7 cents-a-share estimate that was the average of 15 analysts surveyed by Bloomberg.
The New York-based carrier said it canceled 4,100 flights in the northeastern U.S., trimming revenue by $50 million and operating income by about $35 million.
Southwest Airlines (LUV:US)
Southwest reported profit excluding special items of $126 million, or 18 cents a share. The results topped the average analysts’ estimate by 1 cent as the carrier reduced operating expenses by 1.2 percent on the same basis.
The airline canceled more than 7,500 flights during winter storms, reducing income by $50 million. Even so, revenue rose 2 percent to $4.17 billion, shy of analysts’ estimates of $4.18 billion, as passengers flew more miles and paid higher fares, the Dallas-based carrier said.
Travel demand remains strong at least through the next three months as consumers who feel more confident in the U.S. economy opt to travel more, CEO Gary Kelly said in an interview.
“That is always fragile and tenuous, but right now there is less uncertainty than there has been over the past four to five years,” he said. “Recovery, while sluggish, is plugging along.”
Delta yesterday forecast stronger demand and revenue than analysts had estimated headed into the busy summer travel season. Profit in the first quarter, excluding some items, exceeded analysts’ estimates. The carrier merged with Northwest Airlines Corp. in 2008.
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