United: Selling cheaper fares hurt 3Q results
Sorry, bargain-hunters. United Airlines says it sold too many cheap tickets in the third quarter, and plans to fix that.
The airline is tweaking computer formulas that tell it when to sell tickets at a discount, and when to hold out for last-minute travelers willing to pay more. Get it right, and an airline can fill a plane and get as much revenue as possible from its travelers. Get it wrong and the airline ends up filling the plane with folks who paid less than they might have otherwise.
United said on Thursday that its computers missed the mark for much of this summer. As a result, “our revenue results were not at the level we expected or deem acceptable,” said Jim Compton, United’s chief revenue officer, on a conference call.
Compton said United has already made changes so it sells fewer cheap seats in advance of a flight.
– From wire reports
And next month it will tweak the computers again so they account for recent demand in addition to the usual seasonal patterns.
United has been struggling to absorb Continental after their 2010 merger. On Thursday, Chairman and CEO Jeff Smisek said it has improved its operations and customer service to the point where it is competitive in those areas, but its financial results still aren’t good enough.
United is still the world’s largest airline by passenger traffic, but some customers avoided it after some well-publicized service problems. Traffic fell slightly in the most recent quarter, and is down 1 percent for the year. By comparison, traffic at rival Delta Air Lines Inc. is up slightly so far in 2013.
About 79 percent of United flights arrived on time through August of this year, according to the Transportation Department. That was better than American’s 75 percent but not as good as Delta’s 85 percent.
In an effort to improve both its on-time performance and its financial results, United is trying to cut its taxi times, make sure the jetbridge is ready to meet an incoming plane, and get the plane ready to go more quickly, Compton said.
For instance, United used to wait until the scheduled boarding time to allow the first passenger to scan a boarding pass and head down the jetbridge. Now, it starts one minute before boarding time, so the first passenger is stepping onto the plane right at the scheduled boarding time, spokeswoman Megan McCarthy said.
United Continental Holdings Inc. earned $379 million, or 98 cents per share, for the quarter. If not for special charges, it would have earned $590 million, or $1.51 per share. Analysts surveyed by FactSet expected $1.54 per share.
United had a profit of $6 million, or 2 cents per share in the year-ago quarter.
Revenue in the most recent quarter rose 3 percent to $10.23 billion, also less than analysts had expected.
United passenger revenue for Pacific flights fell 11 percent. It posted an 11 percent gain in revenue from Atlantic flying, and a gain of 0.4 percent in domestic revenue.
“Long-term we continue to like the company, however we believe the absolute short-term will not be pretty,” Cowen and Company analyst Helane Becker wrote in a note shortly after United’s results came out.
Investors have been patient with United, assuming that its profit margins will catch up to Delta, which has had longer to absorb its acquisition of Northwest.
But JPMorgan analyst Jamie Baker wrote after the earnings report that the gap of nearly a half-percent between United’s profit margins and the rest of the industry appears to be getting worse, not better.
“We remain perplexed by the market’s willingness to value UAL as the next Delta in spite of UAL’s fundamental results,” he wrote.
Shares of Chicago-based United Continental Holdings Inc. rose 37 cents to $31.32 in afternoon trading.