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The Honolulu Advertiser
Posted on: Wednesday, November 1, 2006

United parent posts $190M profit in third quarter

By DAVE CARPENTER
Associated Press

United Airlines parent UAL Corp. yesterday reported third-quarter earnings of $190 million, thanks to higher fares and lower costs.

ASSOCIATED PRESS LIBRARY PHOTO | August 2006

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CHICAGO The parent of United Airlines posted a second straight quarterly profit yesterday for the first time in six years, a $190 million gain that lifted the longtime industry laggard near the top of U.S. carriers for profitability in the third quarter.

UAL Corp. overcame soaring fuel expenses with the help of higher fares and lower costs as the result of its three-year bankruptcy restructuring, which concluded in February.

Its second straight quarter in the black followed a $119 million profit in the April-through-June quarter that was its first true profit since 2000.

The gain also was second-biggest behind Continental Air Lines Inc.'s $237 million among U.S. airline companies for the third quarter. Among chief competitors, American Airlines parent AMR Corp. had a $15 million profit, Southwest Airlines Co.'s gain was $48 million and US Airways Group Inc. had a $78 million loss, with Delta Air Lines Inc. and Northwest Airlines Corp. still in bankruptcy.

"This was the best performance since (UAL) exited bankruptcy earlier this year, and compares more favorably with results reported by its peer large U.S. airlines than did earlier quarters' results," Standard & Poor's analyst Philip Baggaley wrote in a note to investors.

After lagging its competitors for the past several quarters, Merrill Lynch analyst Michael Lynch noted that UAL registered a 5.9 percent operating margin that modestly exceeded that of its peers, such as AMR's 4.9 percent and Continental's 5.5 percent.

Net earnings for the three months ended Sept. 30 amounted to $1.30 per share, compared with a loss of $1.77 billion, or $15.26 per share, a year ago when the company was nearing the end of its restructuring.

The Elk Grove Village, Ill.-based company said $60 million in income tax expense reduced earnings by 43 cents a share. Without that, it would have easily topped analysts' consensus estimate of $1.43 per share as based on a poll by Thomson Financial.

Revenue was $5.2 billion, up 11 percent from $4.7 billion a year ago and in line with expectations.

Shares fell 83 cents, or 2.3 percent, to close at $35.94 on the Nasdaq Stock Market, finishing October up 35 percent for the month.

UBS analyst Kevin Crissey called UAL's third-quarter report "messy" and full of special items. He urged investors to "ignore the mess" as the underlying trends are positive, including strengthening unit passenger revenue.

J.P. Morgan analyst Jamie Baker also said United's results were better than he expected, citing its "significant revenue momentum."

Like other U.S. airlines, United's bottom line benefited from increased fares despite the cost of fuel, which remains high by historic standards despite a recent decline. The company said continuing revenue and productivity improvements more than offset a $293 million increase in fuel expenses during the quarter.

Chairman and CEO Glenn Tilton called the quarter "solid" and said United's revenue increase compared favorably to those of its industry peers.

He told employees in a recorded message that the results "demonstrate momentum on our core agenda of continuous improvement, controlling our costs, optimizing our revenue and improving our customer experience."

UAL said overall capacity rose by 3 percent over a year ago and is expected to increase by only about 1 percent next year. The company does not plan to increase its fleet size

Chief Financial Office Jake Brace said United still has one of the industry's youngest fleets and won't start thinking about buying new planes such as the Boeing 787 or Airbus 350 until it meets or beats its business-plan goals for another two to four quarters.

"We have a lot of time before we actually need to take any replacement action," he said on a conference call.

United's operating profit in the third quarter was $335 million, up from $170 million a year earlier.

Top-heavy with costs, United lost more than $8 billion from mid-2000 until earlier this year. The company officially reported a $22.9 billion on-paper gain for the first quarter, but that reflected a formal settling of accounts from bankruptcy and was not a true profit. Excluding those reorganization items, it lost $306 million in that period.