United Continental Holding (NYSE: UAL) reported first quarter earnings last Thursday, providing mixed, if somewhat positive results. This was the second quarterly earnings since United Airlines merged with Continental Airlines in October 2010.
Although the two airlines were still separate companies for the year-ago quarter, the press release used consolidated figures for earnings and revenue so a year-over-year comparison can be made. First quarter earnings were a net loss of $0.41 per share, excluding merger expenses. The GAAP earnings including special item and merger cost that led to a loss of $0.65 per share. In comparison, the consolidated earnings from a year earlier were a loss of $0.58 per share.
Revenue for the quarter of $8.2 billion was a 10.8 percent improvement over sales for the two airlines a year earlier. The important passenger revenue per available-seat-mile metric was 9.9 percent higher than consolidated results for the first quarter of 2010.
The press release noted the company had reduced trans-Pacific capacity following the earthquake and tsunami in Japan. Capacity was reduced by 10 percent for April and 14 percent for May. First quarter revenue was negatively affected by $30 million due to the disaster.
The two airlines, United and Continental, still function as separate airlines and the pace of consolidating operations has been deliberate. Check-in, ticket counter and gate facilities are now together in 36 airports and 460 aircraft - 30 percent of the fleet - have been repainted to the new United colors.
As always with airlines, fuel costs played a major factor in the quarter's results. Quarterly expenses increased by $825 million, $725 million of which was due to higher fuel costs. With a reported net loss of $136 million for the quarter, the increase in fuel costs was three times the size of the quarterly loss. To continue the rest of 2011, UAL has so far hedged 46 percent of the company's fuel needs for the remainder of the year. Seat capacity is also being reduced to offset higher fuel costs. This is an effort to increase revenue per seat mile with a higher percentage of filled seats.
The second and third quarters are the seasonally profitable reporting periods for the airline. In 2010, the company earned $1.90 per share in the second quarter and $2.26 in the third quarter out of total annual earnings per share of $4.30. The estimated earnings for the next two quarters of 2011 are $1.70 and $2.06, respectively, the bulk of the forecast earnings of $3.87 for the full year. Earnings are expected to grow by about another $1.00 per share in 2012.
UAL shares, currently trading at about $21.50, are $7.00 below the recent high hit soon after the merger. It appears the company is able to generate steady revenue growth, but as often happens when business picks up for the airlines, so does the cost of fuel. The best investors can hope for with UAL is a couple of earnings surprises to give the stock a short term pop.
