United Trimming Seats to Cut Costs Bucks Rivals’ Additions

United Continental Holdings Inc. (UAL) will trim available seats by as much as 1.4 percent this quarter, bucking increases by other U.S. airlines during the peak summer period.

Most of the capacity cuts will be on domestic routes, Chicago-based United said today in a regulatory filing. The world’s largest carrier also posted an adjusted second-quarter profit of $1.35 a share, matching analysts’ estimates, as it nears completion of integrating operations with Continental Airlines, which it bought in 2010.

United is hunting for ways to reduce expenses in response to sluggish demand for travel that limited its second-quarter revenue gain to less than 1 percent, to $10 billion. United trimming flying contrasts with increases by Delta Air Lines Inc. (DAL), American Airlines and Southwest Airlines Co. (LUV), which say their gains are driven by the addition of larger planes or longer routes being flown.

“United is doing a better job with its merger integration and these capacity cuts should help right-size the networks so that they can continue to improve unit revenues,” James Corridore, an analyst with S&P Capital IQ in New York, said in an interview. He recommends holding United.

United’s shares dropped 1.9 percent to $34.30 at the close in New York, while Southwest rose 0.4 percent to $13.81 and Alaska Air declined 1.3 percent to $60.37.

Photographer: Brent Lewin/Bloomberg

The company's shares rose 1.2 percent to $34.97 yesterday in New York. Close

The company's shares rose 1.2 percent to $34.97 yesterday in New York.

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Photographer: Brent Lewin/Bloomberg

The company's shares rose 1.2 percent to $34.97 yesterday in New York.

Southwest, Alaska

Southwest’s adjusted profit of $274 million, or 38 cents a share, also met analysts’ projections. Alaska Air Group Inc. (ALK) reported profit of $1.47 a share, excluding certain items, which trailed the $1.51 average of analysts’ estimates.

Including expenses related to merger integration, United said its net income rose 38 percent to $469 million, or $1.21 a share, from $339 million, or 89 cents, a year earlier.

United’s fuel bill dropped 10 percent in the second quarter, to $3.1 billion, which helped offset a 5 percent decline in the number of passengers carried on its main jet operations.

The carrier reduced total capacity by 2.1 percent, which kept planes an average of 84.7 percent full, the highest ever for the second quarter, according to the statement.

Capacity Cuts

It also helped United post a 1 percent gain in passenger unit revenue for the quarter, a benchmark gauge of revenue for each seat flown a mile, while Delta’s was unchanged and American’s fell 0.9 percent.

“The reason that they did beat peers on unit revenue growth in the quarter is because of their capacity cuts,” Corridore said of United.

United is taking out even more capacity in the current quarter to further lower costs. Airlines often cut available seats after the peak summer travel season ends following the U.S. Labor Day holiday, which is on Sept. 2, because demand often slows.

That contrasts with peers including American, which is boosting capacity by 2.7 percent this quarter as it adds longer flights to South Korea and South America, and Delta’s 2 percent increase in the second half of the year as it adds more seats by replacing 50-seat jets with larger aircraft.

‘Pretty Cautious’

Dallas-based Southwest’s capacity will rise 1.7 percent this quarter as it adds larger Boeing 737-800 planes to its fleet and installs six more seats to most of its existing planes as it refurbishes interiors, Chief Executive Officer Gary Kelly said today in a telephone interview.

“We have more seat-miles being offered than I would wish,” Kelly said. “There are some things like that that are going to happen.”

Despite the growth, Southwest is still “pretty cautious in our outlook, and we don’t plan to grow” capacity next year, Kelly said.

Delta’s CEO Richard Anderson said yesterday on a conference call with analysts that the Atlanta-based carrier’s near-term capacity growth as it makes changes to its fleet “shouldn’t be mistaken for any change in philosophy about how we manage capacity here.”

“You can always expect that we will be conservative,” Anderson said.

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

To contact the reporter on this story: Jennifer Surane in New York at jsurane1@bloomberg.net.

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