October 26, 2012
United Airlines President and CEO Jeffery Smisek concedes that the airline’s dismal operational performance in the third quarter adversely affected corporate bookings by “a significant number,” but he expects to see high-yield passengers return now that the problems, which stem from the integration with Continental Airlines, have been resolved.
The carrier’s third-quarter, on-time arrival rate of 72.4% trailed peers, although this often-used industry metric improved to more than 80% in the last month of the September quarter, says United. This upturn in September indicates that “we are now running a reliable airline again,” Smisek said during the airline’s third-quarter results conference call.
Smisek also noted that the company’s sales force was reaching out to corporate customers to inform them that United’s issues—many of which centered on combining reservations systems—were resolved and that he was confident that yields in the coming quarters would show a return to previous levels without the need for incentives.
Corporate sales are an increasingly important sector for the small number of legacies that have survived consolidation. Delta Air Lines alone attributed much of its $1.3 billion in third-quarter profits to its aggressive push for corporate bookings.
The difference between Delta’s income and United’s third quarter is stark. United, while congratulating staff on “for working together to help us earn more than half a billion dollars of profit this quarter,” generated $514 million of its $520 million net profit from fuel hedge accounting rules—without that the quarter produced merely $6 million in net profits.
This compares to a net profit of $653 million in the same period last year.
United’s third-quarter results illustrate the reason for the decline. Revenues were down almost everywhere, with only the Pacific region posting any gains. And while total sales dropped 2.6% to $9.9 billion, costs rose 5.1% to $9.7 billion, which in turn reduced quarterly operating income from $935 million to $200 million.
In addition to attracting high-yield corporate traffic back, United continues to cut capacity to boost future profits. Domestic and international available seat miles, for instance, are set to decline 2-3% in the last three months of 2012, and by the end of 2012, supply will be 1-1.2% below 2011 levels. These cuts will continue into 2013, although United is less specific about the effect this will have on each sector; Smisek, however, acknowledged that declines will be seen on short- and long-haul networks.