United Q2 Profit Down, Will Scale Back Growth

July 19, 2016

United Airlines reported a lower second-quarter profit as aircraft routing and engine usage helped it save on fuel.

United earned USD$588 million in the second quarter. Excluding items such as airport assets that lost value, profit fell 32 percent to USD$863 million.

United said it kept costs down by burning less fuel than expected due to efficient routing, shutting down engines when aircraft were parked and other changes.

United forecast a pretax profit margin of 13.5 percent to 15.5 percent excluding special items for the third quarter, compared with 12.7 percent a year ago.

STOCK BUYBACK

United said it will buy back USD$2 billion of stock and sell fewer seats than planned, as rivals add flights in excess of demand, pushing down fares, the airline said.

The moves are the latest attempt by United and its reshuffled board to attract investors and narrow a profit margin gap with Delta.

Fresh off a battle with two activist hedge funds, United's board approved a stock buyback of USD$2 billion, or almost 13 percent of the company's market value. The airline said separately it appointed a 15th board member, healthcare executive Edward Philip, in agreement with the funds.

But investors appeared to focus more on United's months-long decline in passenger unit revenue. In the second quarter, the measure fell 6.6 percent from a year ago, and United forecast it will drop between 5.5 and 7.5 percent in the third quarter.

"Demand growth (is) not keeping pace with capacity growth," United said.

Aiming to fly fewer empty seats and charge higher fares, United said it would grow by up to 1.5 percent in 2016 from a year ago, compared with prior plans to grow up to 2 percent.

Like Delta, United said it would sell fewer seats from the United Kingdom, with some routes becoming seasonal in 2017.

A steep drop in sterling against the US dollar since Britain's June 23 vote to leave the European Union has made it more expensive for Britons to visit the United States, threatening bookings.

(Reuters)