DALLAS – United Airlines reported a 38 per cent drop in first-quarter profit as higher taxes offset some of the gains from cheaper jet fuel.
Revenue fell 5 per cent partly due to a slump in business travel during the weeks around Easter and spring break.
United continues to find it hard to boost revenue, even heading into the peak summer months.
United said that a key figure — revenue for each seat flown one mile — fell 7.4 per cent in the first quarter. It expects the figure to drop a similar amount — between 6.5 and 8.5 per cent — in the second quarter compared with a year earlier. Analysts expected a decline of about 5.4 per cent for the second quarter, according to a survey by FactSet.
Besides the drop in last-minute business travel, United blamed the revenue challenges on the strong U.S. dollar and lower oil prices, which forced airlines to cut fuel surcharges on international tickets.
Parent Chicago-based United Continental Holdings Inc. said Wednesday that first-quarter net income of $313 million fell from $508 million a year ago. The decline was partly because the company paid $181 million in income taxes compared with $3 million in the same quarter last year, when it was able to reduce taxes because of heavy losses in prior years.
Net income was 88 cents per share. Excluding what United considers non-repeating items, the airline said that it earned $1.23 per share, beating Wall Street expectations. Analysts surveyed by FactSet expected $1.18 per share.
Revenue slipped about $400 million to $8.2 billion, matching the analysts’ consensus prediction.
Fuel spending dropped 35 per cent, a savings of $646 million, as airlines continue to benefit from falling oil prices. Labor costs rose 8 per cent and were double the fuel bill.
Separately, United announced Wednesday that it had agreed to appoint a new chairman and add two new directors who were nominated by two big investment funds that were unhappy with the company’s financial performance.
Shares of United ended regular trading at $58.60, up 55 cents. In extended trading after the financial results, the shares dropped immediately by more than 4 per cent, although they recovered somewhat and were down $1.60, or 2.7 per cent, to $57 about an hour after the news.
In the past year, United has struggled with a decline in the amount passengers pay for every mile they fly. It shares that problem with American and Delta.
But United’s challenges go deeper. CEO Oscar Munoz admits customer service needs to get better. Its on-time rating trailed Delta, American and Southwest last year. United saw a larger-than-expected drop in last-minute business travel during the weeks around Easter and spring break, which investors feared could be a harbinger of a broader downturn in corporate travel.
Munoz has promised that the airline will improve its operations and its financial performance. He said Wednesday that the company would be more transparent and improve its relations with employees.
Earlier in the day, he greeted workers during an open house at United’s new club inside Chicago’s O’Hare Airport.
“People were almost in tears because they have never been in a (United) club,” he said. “We have never invited them. How dare we have a home where we don’t invite our own family members into?”
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