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An all things aviation blog

As a disclosure, I do not own any United Airlines stock nor do I plan to purchase any in the next 90 days.

This past week United Airlines reported earnings for Q4 2012 and 2012 overall. For Q4 UA lost $1.87 dollars per share and for the whole year $2.18 per share or 723 million dollars. Based on UA’s share price since these numbers have been released they were in line with expectations.

The results and investor conference call can be found here:

When it comes to earnings I keep things simple, you either make money or you don’t. There are a lot of ways that this data can be cut in order to predict future results and if they are of interest you post them in the comments and we’ll discuss.

Last year United reduced capacity by 1.5% year over year, yet load factor only increased by 0.01% year over year. This tells me that United sold fewer tickets in 2012 compared to 2011. United clearly needs to sell more tickets, and I’ll talk more about that when I get to the conference call.

Next CASM or cost per available seat mile. This is how much it costs United to fly one seat one mile. In 2012 CASM rose from 13.15 cents to 14.12 cents. So in 2011 a 737-900ER with 173 seats flying IAH-EWR (1400 mi) cost united $31,849.3 but this year 2012 cost $34,198.64 or an increase of $13.58 per passenger if it was a full flight. This kind of explains United’s unsuccessful attempts to raise fares recently.

Now, RASM or revenue per available seat mile or how much United generates per seat per mile increased from 11.84 to 11.93 cents per mile. Revenue is still falling short of costs. So how was this addressed in the conference calls?

I listened to the entire conference call and there was some interesting information in the call. First, all future statements made in the call were covered by the safe harbor provision.

In the call United said in 2013 there will be a shift from integration to optimization, and we can expect to start seeing the benefits of the merger take hold in 2013. United committed to cutting non-aircraft debt, 1.3 billion in capital expenditures, and increasing corporate contracts. They also commented they were committed to the second bag fee on US flights to Japan, $250 million in merger costs, and continued capacity cuts.

On the customer side, United committed to having all TATL wide bodies having lie-flat seats by the end of February and the complete fleet conversion by the end of Q2 2013.

Finally, before the Q&A United mentioned that E+ sales were up 25% (probably due to silvers no longer having access at booking) and Buy-Ups to F increasing 34%. Day of departure upgrades are apparently as popular as ever.

On to the Q&A:

Excluding special charges UA made almost 600 million in 2012 versus the 1.3 billion Delta made. The question was asked what is being done to bridge this gap. The answer was vague, I wasn’t happy with it. United just stated increase optimization. No mention of buying an oil refinery, which was specifically asked about.

United through the Q&A mentioned customer experience, and committed to a better customer experience including new software for gate agents followed by ticket agents. With all of the hate on SHARES, this was to be expected. No time line on this was mentioned.

The last big issue discussed was corporate contracts. It was discussed before the Q&A with no details given, and one of the analysts on the call jumped on it, asking what were the specifics. United referenced that there increased reliability system wide and that the discussions with the corporate sales force has shifted from operational concerns to network, which suggests that there is greater corporate interest in United.

Overall, I was unimpressed with the call but it was in line with expectations. Nothing dramatic was announced with the exception of the wide-body modifications. I would have liked to have seen more details on finishing the merger, but they were not given. When pressed for details, the predictable response of we’re not going into details was the response. With airlines changes generally come in degrees so it will be interesting to see where UA is after Q2.

Have a great weekend!



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