United’s total operating revenues grew 4.9% in 1Q2012 compared with 10.3% at US Airways and 9% at Delta. Carrier chief revenue officer, Jim Compton explained that after the cutover to the new inventory management system, the airline experienced a decline in connecting traffic, which negatively affected load factors.
The carrier’s consolidated passenger revenue per available seat mile grew 5.2% year-over-year during the quarter compared with 14% growth at Delta and an 8.2% increase at US Airways. Mr Compton estimated the technology system cutover affected United’s unit revenue growth by roughly a point.
US legacy carrier passenger unit revenue performance: 1Q2012
|Unit revenue growth
United also suffered from a USD557 million hike in its consolidated fuel expense, which drove overall expenses up 8.6% to USD8.9 billion. The company’s consolidated unit costs excluding fuel, special items and third party business expense grew 0.7% to USD8.97 cents.
Latin America continues to outperform
Similar to 4Q2011 and full year 2011, Latin America remained United’s best performing entity during the first three months of 2012 as unit revenues grew 7% and yields in the region increased 6.9%. Mr Compton remarked that South America continues to fuel much of the growth in United’s Latin American business as both yields and unit revenues in that region increased 11% year-over-year during 1Q2012.
Latin America has led growth for American Airlines, which derives its highest yields in the region.
United’s trans-Atlantic results were mixed as the carrier recorded a 5.3% rise in unit revenues and 6% yield growth in those markets. Mr Compton cited some outstanding performers such as Germany, with 20% unit revenue growth in the premium cabin and 8% overall unit revenue growth. He characterised India as a laggard as unit revenues only inched up 2% year-over-year.
United revenue performance by geographic region: 1Q2012
The carrier continued to see pressure in its Pacific markets from competitor capacity introduced last year. Cathay Pacific launched flights from Chicago to Hong Kong in Sep-2011 and both United and American launched flights from Los Angeles to Shanghai last year, joining existing flights operated by China Eastern. United also pointed out its smaller footprint in Japan relative to rival Delta, which recorded a favourable 15% rise in Pacific unit revenues as its Japanese markets continued recovering from the earthquake and tsunami that struck the country in Mar-2011. United’s unit revenues across the Pacific fell 0.2% during 1Q2012 and yields grew just 4%.
Mr Compton explained roughly 38% of United’s Pacific capacity is dedicated to Japan compared with 78% for Delta. He stated if United had similar capacity to Delta in Japan, “we would have added nine points in PRASM to our Pacific entity”.
Industry capacity to Hong Kong was up roughly 20% during the quarter, said Mr Compton, who explained United managed its capacity in the market down, which also pressured unit revenues.
Chicago O'Hare International Airport to Hong Kong International Airport (seats per week, one way):
19-Sep-2011 to 14-Oct-2012
Despite having a “tough quarter” across the Pacific, Mr Compton remains upbeat that United’s overall portfolio in Asia remains unmatched by any US carrier, stating the smaller-gauge Boeing 787s coming online during the next few years would help United in combating industry capacity increases in Asian markets by allowing the carrier to match its own capacity with demand. The 787-8/9 models have a seating capacity of 210 to 290 seats while the 747s and 777s United currently operates in its Asian markets have seating configurations ranging from 250-plus to 450-plus seats. United has five 787s scheduled for delivery in the back half of this year from a firm order of 50 aircraft.
Revenue continues to sag for the time being
United’s 5% growth in passenger unit revenue forecast for April again continues to lag its industry peers as Delta is forecasting 11% growth and US Airways estimates an 9% increase for the month.
The carrier offered little insight into how long the gap in its revenue performance would last, as Mr Compton explained United enjoyed historically high unit revenues in 2011. He explained United was looking at is unit revenue performance over the long term, noting the carrier has launched a project to redeploy 15% of its mainline departures that allows the carrier to better match aircraft to certain markets to improve profitability. The new inventory management system allows the carrier to place optimal aircraft in certain markets. Mr Compton said overall he is comfortable with the underlying trends in Apr-2012 given the recent systems migration and the overall merger integration.
United is sticking to a capacity refinement it unveiled in Mar-2012 that consolidated supply, which would decrease 0.5% to 1.5% in 2012 from the year prior, which Mr Compton explained would make United’s size 7% smaller than in 2008. In addition to the five 787s being delivered this year, United is accepting delivery of 19 737-900ERs, and is retiring 28 mainline aircraft that includes 18 737-500s, five 757-200s and five 767-200s. The carrier expects 2012 unit costs excluding fuel, profit sharing and third party expense to rise 2.5% to 3.5%.
At the end of 1Q2012 United had USD7.8 billion in unrestricted liquidity, and generated USD124 million of operating cash flow.
Unlike Delta, which posted a USD39 million 1Q2012 loss, but promised its 2012 profitability would outpace 2011’s results, United offered no such declarations.
As Delta has its merger challenges far behind it, United is still working to find methods to run the combined carrier optimally. Mr Compton admitted United was not satisfied with its results and is “focused on improving our performance in the future”.
United financial results: 1Q2012
United consolidated operating statistics: 1Q2012