United gives slightly brighter forecast for 2Q revenue

AP News
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Posted: Jun 21, 2016 12:03 PM

DALLAS (AP) — United led airline stocks higher Tuesday after the carrier detailed plans to increase revenue, control costs and improve reliability in a bid to win back disgruntled travelers.

United also gave a slightly less dire forecast for a key revenue figure in the second quarter that is related to lower fares.

United Continental Holdings Inc., the nation's third-largest airline by traffic, is trying to boost profit margins to be more like rivals Delta Air Lines Inc. and American Airlines Group Inc. United has struggled since its 2010 merger with Continental.

Outages have snarled flights, there has been upheaval in United's management, and large numbers of late and canceled flights have pressured company shares, which are down 22 percent this year.

Oscar Munoz, who became CEO in September only to be sidelined several months by a heart attack and transplant, said United's setbacks have led premium customers to bolt to rival airlines.

"Acknowledging where we went wrong is an important step in our recovery," Munoz said. "While we have narrowed the gap since 2014, the pace of our improvement has been too slow."

And United has shaped up its operations. After trailing all its closest rivals in on-time arrivals in 2015, it has been better than the industry average so far this year.

On Tuesday, executives described measures intended to boost revenue and reduce costs by a combined $3.1 billion by 2018. They believe United can woo more high-fare business fliers with better premium service. United also plans to offer a bare-bones fares starting later this year to win back budget-conscious travelers lost to discount airlines like Spirit and Frontier.

However, Delta and American are making many of the same maneuvers, which will make it more difficult for United to set itself apart.

J.P. Morgan analyst Jamie Baker said the $3.1 billion figure overstates United's likely gain from the actions announced Tuesday and will be partly offset by rising labor costs. But, he added, "we do see value in several of United's initiatives."

More immediately, United said that second-quarter revenue for every seat flown one mile will drop between only 6.5 percent and 7.5 percent compared with a year ago, slightly better than the previous forecast for a decline between 6.5 percent and 8.5 percent.

The declining revenue per mile figure shows that average fares are still falling because airlines are adding flights faster than demand is growing.

In late-morning trading, shares of United rose $1.64, or 3.8 percent, to $45.04. Shares of Delta, American and Alaska Air Group Inc. were also higher.

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