Key Speakers At The U.S. Chamber Of Commerce Aviation Summit
Oscar Munoz, chief executive officer of United Continental Holdings Inc., pauses while speaking to members of the media after a discussion at the U.S. Chamber of Commerce aviation summit in Washington, D.C., U.S., on Thursday, March 2, 2017.  Andrew Harrer—Bloomberg via Getty Images

CEO Oscar Munoz Issues Further Apology, Saying United Needs to 'Do a Much Better Job'

Apr 17, 2017

(DALLAS)—United Airlines' profit plunged 69% in the first three months of the year, and that was before the terrible publicity surrounding the dragging of a bloodied passenger off a plane.

The cost of fuel, labor and maintenance all rose sharply in the first quarter, helping push United's profit down to $96 million, despite higher revenue.

The results released Monday beat Wall Street expectations, however. United performed better by other measures—more cancellation-free days, fewer lost bags.

The power to raise prices was also swinging United's way. A key revenue-per-mile figure was flat, adding to evidence that a two-year decline in average fares is over. United expects the revenue-per-mile figure to rise by 1% to 3% in the second quarter.

It is unclear whether last week's incident in which Chicago airport officers dragged a 69-year-old man off a United Express plane will halt United's progress.

CEO Oscar Munoz issued another apology Monday.

"It is obvious from recent experiences that we need to do a much better job serving our customers," Munoz said in a statement. He said the company is "dedicated to setting the standard for customer service among U.S. airlines."

While the April 9 United Express Flight 3411 made headlines all last week, it has had little effect on United's stock. United Continental Holdings Inc. stock fell about the same as shares of Delta, Alaska and JetBlue last week.

Ahead of its report, United led a rally in airline stocks Monday. The Chicago-based company's shares rose $1.70, or 2.5%, to close at $70.77. After the financial results were released, the shares gained another 73 cents in after-hours trading.

Excluding non-repeating items, United said first-quarter profit was 41 cents per share. Wall Street expected 38 cents per share, according to a FactSet survey of 16 analysts.

Revenue rose 3% to $8.42 billion, also topping forecasts. But operating costs jumped 8%, driven by a 28% increase in fuel, a 7% rise in labor, and a 13% in maintenance and repair expenses.

Airlines are prospering from travel demand that remains relatively strong. Reduced competition — several major airports are dominated by one or two carriers — may limit United's financial fallout to the dragging incident.

Seth Kaplan, managing partner of industry newsletter Airline Weekly, said one-time events rarely have a lasting impact on an airline's revenue. He said a few travelers with options might try another airline, but United loyalists will be pragmatic and take a longer view — and United has been making impressive strides.

"They are more punctual, they're losing fewer bags," Kaplan said. "But it takes some time for the perception to catch up with the reality. This resets the clock. It was the last thing they needed."

Cowen and Co. analyst Helane Becker said Monday that investors should be concerned if the incident leads to more government regulation of the airlines.

United has said it is examining policies including booting passengers off sold-out flights, and has promised a complete review by April 30. It has already taken some steps, including requiring that crew members flying to assignments book flights at least an hour early. Had that policy been in place on April 9, it might have averted the need to remove four passengers to make room for Republic Airline employees on their way to staff a United Express flight the next morning.

Besides the damage to United's reputation, investors are nervous that airlines are planning to add too many flights, undercutting the recovery in prices.

United will increase domestic service this summer, adding some new routes and offering more-frequent flights on others. Munoz has defended the expansion as necessary to fill gaps in United's route map that were created when the airline was shrinking.

United executives planned to discuss the first-quarter results with analysts and reporters on Tuesday.

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