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United Q3 profit up 30% as it recoups fuel costs

United Q3 profit up 30% as it recoups fuel costs

Wednesday, October 17, 2018

CHICAGO — United Airlines says it is now passing the full impact of higher fuel prices to its customers, helping the nation’s third-biggest carrier boost third-quarter profit by 30%.

Parent company United Continental Holdings Inc. said Tuesday that it earned US$836 million, as rising revenue more than offset a 40 per cent jump in fuel spending.

United doesn’t disclose average fares, but an approximation – revenue for every seat flown one mile – rose a surprisingly steep 6.1 per cent from a year ago.

CEO Oscar Munoz declared it a “stand-out third quarter performance” that “is proof that United is building momentum.”

The company raised its forecast of full-year earnings per share.

United shares rose more than 4 per cent in the first hour of late trading after the report was released.

Chicago-based United has struggled to keep up with rivals like American and especially Delta. To turn things around, Munoz’s executive team has added flights from its mid-U.S. hub airports in Chicago, Denver and Houston, where many passengers connect to other destinations. Executives say those are now among United’s strongest operations in growth of revenue per seat.

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United said it earned $3.06 per share, which included losses of seven cents per share from tropical storms that led to cancelled flights. Analysts, who may not have accounted for the storm-related losses, expected $3.09 per share, according to a survey by Zacks Investment Research.

Revenue jumped $1.1 billion, or 11 per cent, to $11 billion, slightly higher than the $10.96 forecast from analysts in the Zacks survey.

Labour costs remained United’s top expense, but fuel ran a close second and is expected to keep rising. United paid $2.32 a gallon in the third quarter and predicted that it will pay between $2.41 and $2.46 in the fourth quarter.

Still, United said that thanks to higher fares, it captured “approximately 100 per cent” of the increase in fuel prices over the same period last year.

The airline said it will earn between $8 and $8.75 per share for all of 2018. The midpoint of that range would beat the forecast of $8.15 among the analysts surveyed by FactSet.

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Cheaper fuel after the oil price collapse of 2014 led to record profits at U.S. airlines. However, it eventually led airlines to expand faster than the growth in travel demand, and all those new flights pushed down average fares in 2016 and 2017. Now rising fuel prices are helping airlines reverse that trend and push average fares higher.

United executives were scheduled to discuss the results with analysts and reporters on Wednesday.

Before the results were released, United shares rose $2.18, or 2.7 per cent, to end regular trading at $83.52. After more than an hour of extended trading, they were up another $3.61, or 4.3 per cent, to $87.13. The shares began the day up 24 per cent in 2018, the leading gainer among U.S. airline stocks.

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