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Company earningsNews

United Airlines sees friendly skies ahead

3Q cargo revenue came down, but that was expected in weak market

This story was updated at 7:40 p.m. EST, 10/16/19. Correction also made for percent drop in Delta’s cargo revenue.

United Airlines [NASDAQ: UAL] reported cargo revenue dipped 4.7% to $282 million year-over-year in the third quarter, but more than made up for it with passenger and ancillary revenue. Operating income soared 24.1% to $1.47 billion and net income grew 22.9% to $1 billion, with operating margin up 2 points to 12.9%.

Pre-tax margin grew for the third consecutive quarter to 11.9%.

The strong financial performance came despite episodes of severe weather, the grounding of the Boeing 737 MAX and volatile global markets, and led the company to raise its full-year earnings guidance to between $11.25 and $12.25. Company executives attributed the success to continued investment in the customer experience.

For the first nine months of the year, United’s cargo revenue was down 4.4% to $863 million. United has fared better than some in the midst of what many consider an airfreight recession this year. Delta Airlines [NYSE: DAL] last week said its third-quarter cargo revenue slumped 17% to $189 million and is down 13% for the year to $567 million due to lower volumes and yield caused in large measure by slower international trade.

However, United’s cargo ton miles, an industry benchmark for the distance freight is carried, fell 5.5% to 804,000 for the quarter and is down 3.3% for the year so far to 2.44 million.

The Chicago-based carrier said Oct. 10 that consolidated revenue per available seat mile increased 1.7% over the prior-year period, while cost per seat decreased 0.9%, helped by a 10.7% drop in fuel expense. Non-fuel expense, however, is up in the second half because of maintenance rounds that were delayed to adjust to the MAX grounding, the temporary suspension of flights to India and the suspension of the Chicago-Hong Kong flight, CFO Gerry Laderman told analysts on a conference call Wednesday morning, Oct. 16. Fourth quarter unit costs will be up 3.5%, bringing the full year increase to 1.2%, compared to expectations of no cost growth. But unit passenger costs are projected to be flat for 2020, he added.

United says it expects to hire about 8,000 people by the end of the year.

During the quarter, United began allowing passengers to prepay for checked bags as soon as their tickets were issued rather than waiting until check-in to pay; took delivery of six Airbus A319 single-aisle planes; made it easier for mileage members to upgrade via the United app; and announced 12 new and expanded international routes from its gateways, nonstop service to Tokyo starting in March and resumption of service from New York/Newark to Delhi and Mumbai, India.

During the earnings call, CEO Oscar Munoz said United’s new ConnectionSaver tool has helped more than 50,000 customers from missing connections since it was rolled out in mid-June.

The system automatically scans flights for customers who are making tight connections to determine if the connecting flight can be held without inconveniencing other customers who have already boarded, taking into account factors such as the time it will take for late connecting customers to travel gate-to-gate. The technology sends personalized text messages to connecting customers who have opted in for notifications with clear directions to the gate for their connecting flight and how long the walk will take.

United is seeing material increases in customer satisfaction and loyalty because of the tech-enabled service, along with other new improvements, such as free Direct TV, enhanced WiFi and enhanced snack selections, President Scott Kirby said. That is translating into more people choosing to fly United.

United continued to be the on-time leader at its Chicago, Denver and Los Angeles hubs among large airlines despite weather disruptions such as Tropical Storm Imelda, which caused severe flooding in the Houston area and impacted more than 20% of system-wide flights for three days. The airline continues to get better at reacting faster to to operational challenges with the help of technology that allows employees to communicate with each other and customers, Chief Operations Officer Greg Hart said.

The airline flew 43.1 million passengers during the third quarter, an increase of 0.5% from the same period in 2018. Year-to-date, passenger traffic is up 3.1% to $123.1 million.

Chief Commercial Officer Andrew Nocella said United this year signed a record 500 new corporate accounts, which will be able to get bigger discounts the more flights they book.

Nocella said United is bullish about fourth quarter sales given the company’s ability to execute in a volatile market and the likely bounce-back of international business.

” I’ve never seen a bigger disconnect between the global headlines in terms of the economy and its potential impact on travel than the numbers I see here at United for yields and future passenger-revenue-per available-seat-mile builds across the globe,” he said.

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Eric Kulisch

Eric is the West Coast Air Cargo Reporter at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He won a regional Gold Medal from the American Society of Business Publication Editors for government coverage, and was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. Eric is based in Portland, Oregon. He can be reached for comments and tips at ekulisch@freightwaves.com

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