United, US Airways Top Profit Estimates as Fares Blunt Fuel Cost

United Continental Profit Exceeds Estimates on Higher Fares
U.S. carriers including United Continental raised fares leading into the peak summer travel season to dampen a 47 percent jump in the price of jet-fuel from the year-ago period. Photographer: Kim White/Bloomberg

United Continental Holdings Inc., US Airways Group Inc. and Alaska Air Group Inc. all reported higher quarterly profits than analysts estimated as fare increases helped blunt rising fuel costs.

United’s profit excluding certain items was $577 million, or $1.49 a share, exceeding the $1.43 average estimate in a Bloomberg survey. US Airways posted earnings of 56 cents a share, topping a 54-cent estimate, while Alaska’s profit of $2.44 a share beat a $2.43 estimate.

The three carriers all raised fares leading into the peak summer travel season, partly to compensate for a 47 percent jump in jet fuel prices from a year earlier. United and others plan to trim capacity after the U.S. Labor Day holiday in anticipation of slowing travel.

“Right now, it looks like the summer will be very strong,” said Ray Neidl, an analyst at Maxim Group LLC in New York. “The big question is the later part of the third quarter, after Labor Day. That’s what is a bit more cloudy right now.”

United’s revenue of $9.8 billion was higher than the $9.7 billion expected by analysts, while US Airways’ $3.5 billion in revenue and Alaska’s $1.11 billion also exceeded estimates.

Kevin Crissey, an analyst at UBS Securities, said today in a note to clients that additional revenue data he compiles suggests a “stabilization in demand after shaky bookings for June travel.”

United’s Results

AMR Corp.’s American Airlines initiated a domestic fare increase of as much as $20 round-trip yesterday that United, Alaska and Delta Air Lines Inc. seem to be matching, Rick Seaney of ticket research firm FareCompare.com said today in an e-mail. It’s the 14th attempted fare hike this year, Seaney said.

Only half of the attempted fare increases have stuck, with six of the previous seven efforts failing when other carriers failed to match increases, according to FareCompare.com.

United’s results excluded a $107 million increase in revenue from modifications on a JPMorgan Chase & Co. credit-card agreement and $146 million in merger integration and severance costs.

Including those items, net income was $538 million, or $1.39 a share, the Chicago-based carrier said today in a statement. Combined profit in the year-earlier quarter was $611 million, or $1.57 a share, United said.

“We moved another step closer to achieving our synergy targets and financial goals,” Zane Rowe, United’s chief financial officer, said in the statement.

United Airlines parent UAL Corp. and Continental Airlines Inc. merged in October in an all-stock deal, forming the world’s largest carrier. The company has promised investors that the merger will bring about $1.2 billion in savings and new revenue.

Japan Traffic

United said passenger revenue fell about $100 million in the second quarter after travel to Japan declined following a March earthquake and tsunami. The carrier cut capacity to and from Japan by almost 12 percent.

The company has said it plans to reduce overall capacity by about 4 percentage points after the peak summer travel season ends.

US Airways, based in Tempe, Arizona, said second-quarter profit excluding certain one-time costs tumbled 60 percent to $106 million, from $265 million a year earlier. The smallest of the major full-fare U.S. carriers said higher fuel prices eroded some benefits from a 10 percent gain in sales, helped by passenger-traffic increases and higher fares.

Including $14 million in legal costs from a planned swap with Delta of certain airport flight slots and debt-refinancing expenses, US Airways’ net income fell to $92 million, or 49 cents.

Alaska Air

Alaska Air’s profit excluding one-time items was $89.6 million, up from $84 million a year ago. Including charges for changes to its fleet and adjustments in the value of fuel hedges, the Seattle-based carrier said net income was $28.8 million, a 51 percent drop.

American Airlines parent AMR posted a $286 million loss yesterday, or 85 cents a share, which was wider than the 81-cent deficit estimated by analysts. The Fort Worth, Texas-based carrier also agreed to buy 460 new more-efficient jets from Airbus SAS and Boeing Co. in a record order.

United rose 45 cents, or 2.2 percent, to $20.73 at 10:06 a.m. in New York Stock Exchange composite trading. US Airways slid 8 cents to $6.82, and Alaska rose 90 cents to $66.60.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE