Friday, April 22, 2011

UA/CO reports big 1st quarter loss

United Continental Holdings, parent of merger partners United Airlines and Continental Airlines, incurred a first-quarter net loss of $213 million, widened from a $183 million pro forma net deficit reported by the two carriers in the March 2010 quarter.

UCH was profitable on an operating basis in the first quarter as revenue increased 10.8% year-over-year to $8.2 billion and expenses heightened 11.2% to $8.17 billion. Operating income of $34 million was down 41.4% from a pro forma operating profit of $58 million in the year-ago quarter. Rising fuel costs, Japan's disaster and unrest in North Africa made the first three months of 2011 "a challenging quarter and, with high fuel prices, we expect challenging quarters ahead," President and CEO Jeff Smisek told analysts and reporters on Thursday. "During the first quarter, [fuel prices] rose to levels not seen since 2008. These are very tough times." UCH's first-quarter fuel costs jumped 28.4% to $2.67 billion compared to the year-ago period even including a $154 million offset from hedging.

But he pointed to the UA/CO merger, which closed last year, as strengthening UCH to "muscle through tough times." The combined UA/CO network is a "potent" draw for business passengers, he asserted, adding that UCH will adjust flight schedules and offer ancillary services to entice business flyers. "I think you're going to see us do considerably more targeting to customers," Smisek said, explaining that fares that have been broken down into a la carte offerings could be "re-aggregated" into tailored packages for different types of passengers. "There's a lot of technological sophistication that will help us do this," he noted. UCH generated $16 per passenger in ancillary revenue in the first quarter, up 15% year-over-year.

Smisek said passengers will start seeing more evidence of UA/CO integration at airports and online starting in mid-May. A merged, refashioned loyalty program will be announced in the third quarter. "It won't be your grandfather's frequent flyer program," he commented. The company aims to have a single operating certificate and unified reservation system in 2012.

Regarding its fleet, CFO Zane Rowe said UCH has "significant flexibility" given that "nearly half of the mainline fleet is either unencumbered or coming off lease by 2013." It expects to take delivery of its first Boeing 787 in the first half of 2012, with six Dreamliners in total to be delivered next year.

UCH first-quarter mainline traffic decreased 1% year-over-year to 41.27 billion RPMs on a 1.5% lift in capacity to 52.38 billion ASMs, producing a load factor of 78.8%, down 1.9 points. Yield increased 13% to 13.97 cents as PRASM rose 10.2% to 11 cents and CASM heightened 9.4% to 12.7 cents. CASM ex-fuel rose 2.2% to 8.48 cents.

The company said it lost around $30 million in first-quarter passenger revenue, owing to disruptions/traffic drops caused by the March 11 Japanese earthquake and tsunami.

(Aaron Karp - ATWOnline News)

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