BUSINESS

Parent of United Airlines boosts 2Q earnings 38 pct. as higher fares offset a dip in flying

07/25/2013 07:59 EDT | Updated 09/24/2013 05:12 EDT
Higher fares and a lower fuel bill led to a 38 per cent profit jump for the parent of United Airlines in the second quarter.

Fewer passengers flew on United from April to June, but those who did paid slightly more. Not just for plane tickets, either. United boosted revenue from add-on charges such as baggage fees and seats with more legroom.

Last spring, United was struggling to merge some of its large computer systems with Continental, resulting in snafus that frustrated passengers and hurt fares.

In the most recent quarter, a key measure of per-seat passenger revenue rose 1 per cent as United recovered. The airline projected that per-seat revenue would rise as much as 5 per cent in the third quarter.

"We have clearly turned the corner post-merger, and I am confident that we are on a path toward becoming the world's leading airline," said Jeff Smisek, the airline's chairman, president, and CEO, on a conference call.

United sees one path to greater profitability in collecting more money for add-ons. Revenue for its extra-legroom Economy Plus seats jumped 37 per cent in the most recent quarter. United hopes to sell more of those seats through the Sabre ticket distribution system next year. Sabre processes sales to large corporate travel clients and online booking sites such as Travelocity, which Sabre owns.

United also sells "subscriptions" for a $500 fee that entitles a passenger to Economy Plus for a year. And it's rolling out satellite-based Internet connections that it will sell to passengers. Revenue from add-ons like that rose by 13 per cent to more than $20 per passenger in the second quarter, United said.

"We believe there is considerable room for us to grow in this high-margin space," said Chief Revenue Officer Jim Compton.

The airline is also aiming to bring so-called "revenue management" to more of those fees. Airlines have long sold tickets for different prices depending on how much demand there is for the flight and how far in advance the customer is booking. Now it's doing the same thing with those Economy Plus seats.

The next step will be to make different offers to different customers, Compton said. United deals with 140 million passengers per year, "not all of whom want or value the same thing from us, and not all of whom in return create the same value for the company," Compton said. He said United will beat its earlier goal of raising revenue from add-ons by 9 per cent.

United Continental Holdings Inc. earned $469 million, or $1.21 per share, for the quarter. It would have earned $1.35 per share if not for special items. That's a penny better than expected by analysts surveyed by FactSet. A year ago it earned $339 million, or 89 cents per share.

Revenue rose almost 1 per cent to $10 billion, about what analysts had expected.

United cut flying by 2 per cent compared to a year earlier. Its fuel bill dropped 10 per cent on a combination of the reduced flying and an 8 per cent drop in the per-gallon price of fuel.

Lower fuel bills helped all of the big airlines in the most recent quarter. But oil prices have risen in recent weeks, likely dampening the relief for airlines.

Shares of Chicago-based United Continental fell 67 cents, or 1.9 per cent, to $34.30.