United Airlines parent posts 2Q profit on one-time gains
July 21, 2009 ·
The parent of United Airlines said Tuesday it is cutting international capacity by an extra 7 percent during the last four months of this year, as it posted a $28 million second-quarter profit due to fuel hedge gains and other one-time items.
UAL Corp. said that the international capacity reductions it is planning starting in September are part of an effort by the Chicago-based airline company to better match supply with demand.
Its shares rose 27 cents, or 7.7 percent, to $3.78 in afternoon trading.
The earnings were equivalent to 19 cents a share for the three months ended June 30, compared to a loss of $2.74 billion, or $21.57 a share, a year ago.
Excluding one-time items, UAL Corp. said it lost $2.23 a share in the quarter. Analysts surveyed by Thomson Reuters had been expecting a loss of $2.61 a share excluding items.
Revenue fell 25.2 percent to $4.02 billion from $5.37 billion a year earlier. Analysts had been expecting revenue of $4.04 billion in the latest quarter.
The parent of the nation’s third-largest airline said it ended the quarter with $2.6 billion in unrestricted cash, ahead of its previous projection of $2.5 billion. The company raised an additional $155 million earlier this month through a spare parts financing transaction. That money will be included in its third-quarter figures.
Airlines have been hit hard by falling demand for air travel, especially among business customers.
UAL reported a year-over-year 17.2 percent decline in second-quarter consolidated passenger unit revenue per available seat mile.
Glenn Tilton, chairman and chief executive of United, said during a conference call with analysts and reporters that the airline believes that despite capacity reductions numerous carriers have already completed “industry capacity is still not aligned with demand, especially internationally.”
Chief Operating Officer John Tague said United will suspend winter season service from Washington to China and Denver to London-Heathrow, and it will eliminate a second daily trip from San Francisco to Tokyo-Narita.
Tague said there were no current plans to cut more jobs because of the latest international capacity reductions. Tague said that will depend on several factors, including attrition between now and the fourth quarter.
Carriers have been cutting costs and adding new fees or increasing existing ones to weather the downturn. There also has been deep discounting of fares from time to time.
United said it has cut planned capital expenditures to $300 million, a reduction of $150 million from the $450 million the company originally planned for 2009.
Amid the financial turmoil in the industry, some analysts have raised concerns about the ability of some airlines to survive long-term if the economy remains weak for an extended period or gets worse. They have paid particular attention to the cash position of UAL, American Airlines parent AMR Corp. and US Airways Group Inc.
UAL said Tuesday it expects scheduled debt and capital lease payments of $460 million for the remainder of 2009. It noted that it has $1.1 billion in unencumbered assets — consisting of aircraft, engines and other assets — that it could leverage if it needed to raise additional cash.
One bright spot for the airlines has been lower fuel prices, a fact that especially helped United in the quarter. The company said that during the quarter $385 million in cash collateral related to fuel hedge contracts was returned.
For the first half of the year, UAL posted a net loss of $354 million, or $2.44 a share, compared to a loss of $3.29 billion, or $26.52 a share, for the same period a year ago. Six-month revenue fell 23.5 percent to $7.71 billion from $10.08 billion a year earlier.
Standard & Poor’s analyst Jim Corridore reiterated his “Hold” opinion on UAL shares. He noted that the company’s results were aided by fuel hedging gains and cost controls, but revenue across all geographies came in weaker than S&P expected. Corridore said United’s planned international capacity reduction is prudent given the current environment. He said he views UAL’s available cash at the end of the quarter as adequate.
Tilton told reporters on the conference call that United continues to believe further industry consolidation on a global basis “will be beneficial to the challenge of excess capacity in the marketplace.” He did not say how United might figure into that issue beyond the alliances it has already formed.