Fuel-hedging contracts, severance costs push United Airlines' profit down 80 per cent in 4Q

CHICAGO – United Airlines’ fourth-quarter profit fell 80 per cent due to severance costs and contracts that lost value as oil prices tumbled.

Without those one-time setbacks, however, the airline’s adjusted profit soared.

The split results show how falling oil prices are a boon and a burden to airlines. The price of fuel — their biggest expense — is lower, but so is the value of contracts that most airlines hold to hedge against rising energy costs.

The paper losses generated by fuel-hedging contracts are obscuring how well the airlines are doing. Solid travel demand is translating into higher fares and more money from add-on fees for checked bags and other services.

Excluding one-time charges for hedging, severance payments and other things, United Continental Holdings Inc. earned $2 billion in 2014, an 89 per cent increase over the year before. The company appears to finally be putting things together after struggling to carry out the 2010 merger of United and Continental.

“We’re starting 2015 as a better airline, and we expect to generate far better results,” Chairman and CEO Jeff Smisek said in a statement. “I’m excited about what we will do this year.”

The Chicago-based company, the nation’s second–biggest airline operator, said Thursday that net income dropped to $28 million from $140 million a year ago because of $433 million in special items, mostly $225 million in write-downs on those hedging contracts and $141 million for severance to flight attendants who took early retirement.

Excluding special items, adjusted profit rose 86 per cent to $1.20 per share. That, however, was slightly short of analysts’ forecast of $1.22 per share, according to FactSet. Revenue dipped 0.2 per cent to $9.31 billion, matching expectations.

Average fares were 1.3 per cent higher per mile, but so-called ancillary revenue — fees for everything from checking a bag to more legroom — jumped 9.7 per cent to more than $22 per passenger.

United shares were up $3.31, or 4.8 per cent, to $72.52 in morning trading.