Am I Wrong About United? Financial Results Getting Better

I’ve been hugely critical of United Airlines’ operation, so in the interest of fairness it’s worth pointing out that second quarter financial results were much improved.

Cranky Flier had a good, albeit too-enthusiastic take on United’s performance in the second quarter.

They made $900 million for the quarter, a huge departure from the first quarter in which they lost $600 million.

The second and third quarters are the strongest for the industry. Everyone else is making today. And United still substantially lagged. American, which suffered far greater effects from Venezuela.

But this is a big deal for United anyway, even if they aren’t outperforming the industry, because another quarter like the first one (which was never in the cards) would have meant the Board of Directors would be pretty much forced to oust current executive leadership. That didn’t happen. Smisek has more time.

Going forward, just as United followed Delta’s playbook with their mileage program, they’ll follow Delta and American operationally — they’re getting rid of plenty of 50 seat regional jets, and they’re re-banking their hubs to reduce connection times (spreading out connections is better for costs, but hurts revenue since competitors have shorter travel times). They’ll also follow American’s lead in operating more seasonally — far more capacity in the summer than the winter.

Their earnings statement trumpets the continued rollout of uncomfortable slimline seats that are lighter and allow the airline to squeeze more seats onto a plane. And they’re finally making progress with wireless internet. Cranky points out that on the earnings call, United hemmed and hawed and gave a non-answer regarding the future of Washington Dulles. So that will be something to watch.

They’re putting $1 billion into share repurchase (over 3 years) rather than retiring debt or making additional capital investments with the money. They’re desperate to please Wall Street in the short term.

Bottom-line is that they made money, which buys them time, and they plan to copy their competitors to try to improve the operation.

My fear, for flyers, is that Smisek believes his own hype — that the problems are fixed — because the frontline ones certainly aren’t.

They almost have to make money during the current (third) quarter. What will be especially telling is how they perform during the 4th quarter of 2014 and 1st quarter of 2015.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. (As a former research analyst covering a different industry) one quarter’s results don’t say a lot. Lots of one-off things (good or bad) can impact results in a given quarter. Better to look at a longer trend.

  2. so what’s the point of this useless post? you pretend to ask the question that were you wrong about UA, then spend the whole post talking about how UA lags everyone and copies everyone in an attempt to prove yourself right by focusing on everything else except the actual profit itself (which you justified by claiming 2nd quarter is strong for everyone, so UA deserves no credit for it)

  3. UAL is doing a share repurchase? With shares at all time highs? They have no better use for this cash??? Really?
    UAL is unoriginal, inefficient, and simply riding a wave of stable fuel prices, oligopolistic industry trends and seasonal summer strength. Anything less than a huge quarter would be embarrassing.

  4. @Gary–

    “Going forward, just as United followed Delta’s playbook with their mileage program, they’ll follow Delta…. operationally…”

    Do you think they will follow Delta’s improvement in soft-product, also? Unless UAL does something to justify the increase in prices and decrease in services, UAL’s monkey-see monkey-do business plan bodes poorly for a long-term improvement in revenue.

  5. I don’t think United is out of the woods, but they hardly lagged. On a profit/ASM basis, United was just a few percentage points behind Delta and American.

  6. A major problem with oligopolies is that with just 3 major airlines now if one, or God forbid two, falter then we could be left with just one major airline.

    I doubt all three will stay equal so this is probably where we’re headed.

  7. From a consumer’s vantage point, I don’t really care so much about their financials. Their customer service, which is unbelievably dysfunctional across the board, is what really needs to show improvement.

  8. @kimmie a – i do not think United will follow Delta’s improved soft product. They’ve been talking $2 billion in cost cuts, which makes product investment hard.

  9. @patricia – i wasn’t pretending to ask the question, the issue was “should this force me to re-evaluate my view?” i don’t think this last quarter’s results yet mean that i should.

  10. Only now is American deploying much greater schedule seasonality, especially to the legacy US network. Historically speaking, CO had a lot more seasonal swing in capacity than UA, and that practice continued through the merger. Delta has adopted a similar strategy of late too. I don’t believe UA is copying AA at all in this aspect of their scheduling…

  11. During the past year, I was on three United flights that were significantly delayed — one from SFO to Hawaii (13 hours), one returning from Frankfurt (6 hours) and another one I can’t recall at the moment. In both of the above cases, it was because of airplane problems, not weather. I have been a pretty loyal UA customer but because of this, and due to their changing to a dollar-based mileage program, I see no reason to continue this loyalty. Plus it’s extremely difficult to get a FF seat, or upgrade to one out of SFO.

    I hope UA can manage to stay afloat, but I’m rethinking my strategy of flying UA for most of my flights.

    Thanks for your post, Gary.

  12. They are better off retiring debt, but if they lose next qtr, they will need the money again anyway.

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