United Airlines reported a healthy third-quarter profit today of $1.1 billion, a record and also a 99% increase from last year. Here’s some of the specifics:
- United’s consolidated passenger revenue per available seat mile (PRASM) increased 3.9 percent in the third quarter of 2014 compared to the third quarter of 2013.
- Third-quarter 2014 consolidated unit costs (CASM), excluding special charges, third-party business expenses, fuel and profit sharing, increased 1.0 percent year-over-year on a consolidated capacity increase of 0.5 percent. Third-quarter 2014 CASM, including those items, decreased 4.0 percent year-over-year.
- UAL ended the third quarter with $6.9 billion in unrestricted liquidity.
- The company earned a 12.3 percent return on invested capital for the 12 months ended Sept. 30, 2014.
- United returned $220 million to shareholders as part of its previously announced $1 billion share buyback program.
I doubt most of you are interested in a precise breakdown and analysis of all of this, but I will note a few things.
Discounting the Price of First Class Works Wonders
United’s PRASM is up nearly 4% and while TODs (tens of dollar upgrades) tend to get a lot of blame for cheating elites out of upgrades and lining United’s pockets, I think the real culprit is discounted first class seats that people are buying outright. I wrote about that in a post about fares between Los Angeles and Miami and I have seen it a lot lately – first class is often less than double economy class on many North American routes.
Prior to the merger, this never happened on legacy United – first class was priced high, there were few paid customers, and upgrades flowed freely based on a sticker system (and later complimentary upgrades). Continental was much more willing to sell first class at a more reasonable price. We saw things go the legacy United way for awhile after the merger, but are now seeing a renaissance of discounted front cabin tickets that are leading to higher PRASM numbers. The baggage fees don’t hurt either, of course.
The 767-300s Are Staying, 787-10s Delayed
During the earnings conference call, United stated that it will refurbish 11 tri-cabin 767-300s and keep them in service until 2020. There are currently 21 3-cabin 763s: 11 will be converted, four retired, and six will remain in a three-cabin configuration to eventually be retired at some point before 2020.
United also announced it would defer delivery on 787-10s due in 2017-18 until 2020, though it holds the option to accelerate delivery if conditions warrant.
A Good Day for United
United and its employees have reason to celebrate today…this is genuinely good news and I congratulate United on finally posting a healthy profit. But filling up planes over the busy summer travel period is not all that difficult…now comes the hard part.
Q4 growth is excepted at 1%, which would be mediocre but acceptable and another positive sign that UA has turned the corner. Let’s see how UA performs during the traditional slow season. Expect higher PRASM as UA pulls many aircraft out of service for refurbishment (Wi-Fi!) and trims schedules, but let’s see if UA can turn a profit year around.