United Continental Holdings Inc. lost $213 million during the first quarter, as a much larger fuel bill offset gains from fare increases.
Its fuel bill for the quarter jumped $560 million even though flying increased only slightly. That was a 26.5 percent increase from a year earlier, and pushed fuel spending to $2.67 billion _ making it the airline's single largest expense.
United and other airlines have been raising fares to compensate. Higher fares covered much of the higher fuel prices, but not all. United Continental revenue rose 10.8 percent to $8.2 billion compared to a year earlier.
Airlines have raised fares seven times this year. Other attempted fare hikes have been rolled back when low-cost carrier Southwest Airlines Co. kept its fares down and didn't match the increases. Southwest reported a small profit on Thursday.
United Continental CEO Jeff Smisek said his goal is for fare increases to cover higher fuel costs.
"We've had not only high fuel prices, but quite volatile fuel prices. And so we've tried to chase them," he said. But traveler demand and competition ultimately determine fares, he said.
"We don't set the prices. The market sets the prices," he said.
United has also dropped growth plans for the year. After adding a small amount of flying capacity in the first quarter, it said it would reduce flying by 1 percentage point starting in May, the beginning of the busy summer travel season. It will cut flying by 4 percentage points in September, traditionally a slightly slower time of year for airlines. Smisek said United may reduce capacity more if needed.
The company said it was reducing flying to Japan by 14 percent next month compared with May 2010. Demand for travel to Japan fell sharply after the March 11 earthquake and tsunami. Passenger revenue to Japan dropped by $30 million during the quarter, the company said.
Hedging gains reduced United Continental's fuel costs by $154 million. Airlines use financial contracts that gain in value when oil prices rise to insulate them from price spikes. United has hedged 46 percent of its fuel for the rest of the year to help control fuel costs.
Smisek said United and Continental are better positioned to absorb high fuel prices as a combined airline than they would have been on their own. A merger in October brought the two airlines under one company, based in Chicago. It aims to combine them into one airline flying under the United name by the end of this year.
The company gave year-ago earnings numbers for comparison as if United and Continental they had been combined.
The quarterly loss was 65 cents per share. If not for 24 cents per share in merger expenses, the airline would have lost 41 cents per share. Analysts surveyed by FactSet expected a loss of 48 cents per share. Revenue for the quarter was about the same as analysts expected.
The loss a year ago was $183 million, or 58 cents per share.
The airline said it now expects to take delivery of Boeing's new 787 during the first half of 2012, and to take a total of six by year-end. United Continental will be the first U.S. customer for the more fuel-efficient plane. Boeing has said it will deliver the first one to Japan's All Nippon Airways during the third quarter.
Deliveries of the 787 have been plagued by delays because of construction and materials problems. The plane is currently in test flights.
United Continental shares fell 18 cents to $20.85 in afternoon trading.