October 31, 2006
United Airlines' parent UAL on Tuesday posted a third-quarter profit, but shares fell as some experts considered the ongoing threats to the industry.
United, the number 2 US airline reported earnings of USD$190 million, compared with a year-earlier net loss of USD$1.77 billion.
The profit, UAL's second since emerging from bankruptcy in February, initially sent the airline's stock to a nearly six month high. But shares later fell by around 3.5 percent.
Airline consultant Robert Mann said UAL still faced high fuel prices. "The pressure is not off for sure," he said. "It's never off, but particularly not now."
UAL, which emerged from bankruptcy in February, said that excluding special items, profit was USD$335 million, compared with USD$165 million a year earlier.
Revenue rose to USD$5.18 billion from USD$4.66 billion. UAL said its operating expenses increased by only 8 percent, despite a 23 percent increase in fuel costs.
"Expenses were little lower than I was expecting, so it was not a bad quarter," Becker said.
US airlines have been battered by high fuel costs this year. Intense low-fare competition in the industry has made it hard for the companies to raise fares enough to cover costs.
Carriers, however, have managed to pull capacity -- the number of seats for sale -- from their systems and raise fares accordingly. As a result, airlines are seeing profits.
UAL expects to raise its mainline capacity by 1 percent in 2007, Chief Financial Officer Jake Brace said.
The company used its bankruptcy protection to slash its costs by USD$7 billion a year. The carrier, along with its rivals, continues to seek ways to trim labor costs and costs of operations by improving airline efficiency.
"We reported costs that were competitive with our peers," Chief Executive Glenn Tilton said in a recorded message to employees. "Through our continuous improvement efforts, we are improving our work processes and identifying new cost-savings opportunities."
United and other airlines have enjoyed a decline in energy costs in recent months. Since August, the price of crude oil -- directly linked to the price of jet fuel -- has fallen nearly 25 percent.
Nevertheless, the price remains historically high and is a burden on airlines.
UAL said that as of Monday, it had hedged 34 percent of its expected fuel consumption against sharp price increases in the fourth quarter of 2006 and 25 percent in the first quarter of 2007.
The company said it had ended the quarter with a cash position of USD$4.9 billion, including USD$860 million in restricted cash.
(Reuters)