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United Announces Third-Quarter 2014 Profit

October 27, 2014 Financial No Comments Email Email

United Airlines (UAL) today reported third-quarter 2014 net income of $1.1 billion, or $2.75per diluted share, excluding $151 million of special items, its highest-ever quarterly profit and an increase of 99 percent year-over-year.

Including special items, UAL reported third-quarter 2014 net income of $924 million, or $2.37 per diluted share.

  • United’s consolidated passenger revenue per available seat mile (PRASM) increased 3.9 percent in the third quarter of 2014 compared to the third quarter of 2013.
  • Third-quarter 2014 consolidated unit costs (CASM), excluding special charges, third-party business expenses, fuel and profit sharing, increased 1.0 percent year-over-year on a consolidated capacity increase of 0.5 percent. Third-quarter 2014 CASM, including those items, decreased 4.0 percent year-over-year.
  • UAL ended the third quarter with $6.9 billion in unrestricted liquidity.
  • The company earned a 12.3 percent return on invested capital for the 12 months ended Sept. 30, 2014.
  • United returned $220 million to shareholders as part of its previously announced $1 billion share buyback program.

“Our third-quarter results demonstrate continued progress, and I want to thank our employees for their contributions to our success,” said Jeff Smisek, UAL’s chairman, president and chief executive officer. “We still have significant opportunity ahead to grow our margins and improve the quality and efficiency of everything we do.”

Third-Quarter Revenue and Capacity

For the third quarter of 2014, total revenue was $10.6 billion, an increase of 3.3 percent year-over-year. Third-quarter consolidated passenger revenue increased 4.4 percent to $9.3 billion, compared to the same period in 2013. Ancillary revenue per passenger in the third quarter increased 10.9 percent year-over-year to more than $22 per passenger. Third-quarter cargo revenue grew 19.1 percent to$237 million driven by higher volumes year-over-year, as cargo traffic returned following lower bookings during the implementation of the company’s new cargo systems in the third quarter of 2013. Other revenue decreased 8.9 percent year-over-year to $1.0 billionmostly due to the company choosing to discontinue an agreement to sell fuel to a third party. The corresponding expense decline appears in third-party business expense.

Consolidated revenue passenger miles increased 0.4 percent and consolidated available seat miles increased 0.5 percent year-over-year for the third quarter, resulting in a third-quarter consolidated load factor of 85.8 percent.

Third-quarter 2014 consolidated PRASM increased 3.9 percent and consolidated yield increased 4.1 percent compared to the third quarter of 2013.

“We are seeing good results from our revenue initiatives, and over the next several quarters, we expect to build on our early momentum,” said Jim Compton, UAL’s vice chairman and chief revenue officer. “Our team continues to pursue and implement changes that will enhance revenue performance.”

Passenger revenue for the third quarter of 2014 and period-to-period comparisons of related statistics for UAL’s mainline and regional operations are as follows:

3Q 2014
Passenger
Revenue
(millions)

Passenger
Revenue vs.
3Q 2013

PRASM vs.
3Q 2013

Yield vs.
3Q 2013

Available
Seat Miles
vs. 3Q 2013

Domestic

$3,555

6.5%

7.9%

7.6%

(1.3%)

Atlantic

1,852

4.9%

3.6%

5.4%

1.3%

Pacific

1,326

2.9%

0.2%

1.8%

2.7%

Latin America

681

7.8%

0.9%

(2.1%)

6.8%

International

3,859

4.7%

1.9%

2.8%

2.8%

Mainline

7,414

5.5%

4.8%

5.1%

0.7%

Regional

1,900

0.4%

1.2%

0.1%

(0.9%)

Consolidated

$9,314

4.4%

3.9%

4.1%

0.5%

Third-Quarter Costs

Third-quarter consolidated CASM, excluding special charges, third-party business expense, fuel and profit sharing, increased 1.0 percent compared to the third quarter of 2013.  Third-quarter consolidated CASM including those items decreased 4.0 percent.

Third-quarter total operating expenses, excluding special charges, decreased $180 million, or 1.9 percent, year-over-year. Including special charges, total operating expenses decreased $348 million, or 3.6 percent, in the third quarter versus the same period in 2013. Third-party business expense was $61 million in the third quarter of 2014.

Third-Quarter Liquidity and Cash Flow

UAL ended the third quarter with $6.9 billion in unrestricted liquidity, including $1.35 billion of undrawn commitments under its revolving credit facility. The company generated $574 million of operating cash flow in the third quarter. During the third quarter, the company had gross capital expenditures of $493 million, excluding fully reimbursable projects. The company made debt and capital lease principal payments of $1.1 billion in the third quarter, including the redemption of the entire $800 million of its 6.75 percent secured notes due 2015. The company also issued an additional $500 million tranche of term loan debt in the quarter.

The company’s long-term capital structure goals include reducing its non-aircraft related debt and achieving a total gross debt balance, including capitalized operating leases, of approximately $15 billion while maintaining an unrestricted liquidity balance of $5 billion to $6 billion, including its undrawn revolver.

As part of United’s $1 billion share buyback program, United returned $220 million to shareholders during the third quarter.

For the 12 months ended Sept. 30, 2014, the company’s return on invested capital was 12.3 percent.

“We continue to demonstrate our commitment to increasing shareholder value,” said John Rainey, UAL’s executive vice president and chief financial officer. “We are executing against our $2 billion cost reduction plan, improving our balance sheet, returning cash to shareholders and continuing to make return-driven investments in our product.”

Third-Quarter 2014 Accomplishments

Operations, Employees and Network

  • United Airlines reported a third-quarter mainline on-time arrival rate (domestic and international) of 77.6 percent, which was adversely affected by a runway closure at its San Francisco hub and the Sept. 26 sabotage and fire at the air traffic control center in Aurora, Illinois. The on-time arrival rate is based on flights arriving within 14 minutes of scheduled arrival time.
  • United and the Association of Flight Attendants announced that United will offer its flight attendants an enhanced early out program, which allows participants a one-time opportunity to voluntarily separate from the company and receive a severance payment. United also announced that it is recalling all flight attendants who are on voluntary and involuntary furlough.
  • During the quarter, United announced five new international routes including Guam to Seoul, South Korea, and Shanghai; Houstonto Punta Cana, Dominican Republic; and Newark to London, Ontario, Canada. The company also launched new domestic service from Denver to Lafayette, Louisiana, and Hays, Kansas, and from Houston to Boise, Idaho, and Williston, North Dakota, along with seasonal service from Denver to Sun Valley, Idaho. Additionally, the airline announced new service from Newark to South Bend, Indiana, and seasonal service from Newark to Sarasota, Florida, and San Francisco to Montrose, Colorado.

Fleet and Finance

  • United became the first North American carrier to take delivery of the Boeing 787-9, a stretched version of the Dreamliner that will allow the airline to accommodate more customers and further capitalize on its worldwide route network. The aircraft is the first of 26 787-9s that United has on order. The company also took delivery of four Boeing 737-900ER aircraft and four Embraer 175 aircraft during the third quarter.
  • The company announced that it will add 50 new E175 aircraft to the United Express fleet. United anticipates deliveries will begin inJuly 2015 and continue through the summer of 2017. The new aircraft will replace large turboprop aircraft and older, less-efficient aircraft, and are in addition to the 70 new E175s previously announced, bringing the total of new E175s to 120.
  • United sent notice of redemption of the entire $248 million of its 6.0 percent preferred securities due 2030, which were subsequently retired on Oct. 10, 2014.
  • The company redeemed the entire $800 million of its 6.75 percent secured notes and simultaneously closed on a transaction to increase the size of its undrawn revolving credit facility by $350 million to a total of $1.35 billion, and issued an additional $500 million tranche of term loan debt.

Flyer-Friendly Product

  • United continued to install onboard Wi-Fi at a rapid rate, with more than 330 mainline aircraft outfitted with Wi-Fi at the end of the third quarter, including all Boeing 747 and Airbus A319 and A320 aircraft. By the end of the year, the company will have Wi-Fi on two thirds of its mainline fleet and will have begun installation on its two-cabin regional fleet.
  • The company offered personal device entertainment on more than 180 mainline aircraft – including all Boeing 747s, its Airbus fleet and nine Boeing 777s. Personal device entertainment allows passengers to stream videos and TV shows directly to their own devices inflight.
  • United launched mobile app passport scanning, becoming the first U.S. airline to offer customers the ability to scan their passports on iOS and Android mobile devices to check in for international flights.
  • United announced significant upgrades to inflight food service, including this summer’s introduction of new, fresh salads and sandwiches for premium-cabin customers on North America flights. Next year, the company will introduce completely redesigned menu concepts and the expansion of premium-cabin meals within North America, upgraded premium-cabin meal service on United Express flights with freshly prepared food, and significantly enhanced United Economy meals and beverages on long-haul international flights.
  • United continued installing slimmer, next-generation economy-class seats on certain aircraft, which enables one to two additional rows per aircraft. The airline now offers these seats, which are 10 to 15 percent lighter than the seats they are replacing, on approximately 270 aircraft and expects approximately 350 aircraft to be completed by the end of the year.
  • United launched Mercedes-Benz tarmac-transportation service in Denver, which is now available for Global Services members and United Global First customers at all of the airline’s mainland U.S. hubs.
  • The company became the first airline to offer customers Uber transportation services, now available through the United app.

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