UA Q3 '14 Financials: $1.1bn profit, excluding special items
#61
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Although the I'm hardly a supporter of Smisek, these results still put a smile to my face. I only want UAL and all of its employees, who've been to hell and back for this airline, to do well. ^
I only hope they'll upgrade the entire cabin to whatever next gen C product they have in the works (or keep the same pmUA C seats)...the current 2-class 763/4 seats are ridiculously short, like really short. Not something I'd ever pay for.
I only hope they'll upgrade the entire cabin to whatever next gen C product they have in the works (or keep the same pmUA C seats)...the current 2-class 763/4 seats are ridiculously short, like really short. Not something I'd ever pay for.
My gut tells me the next-gen biz seat will not be compatible with the 767 cross-section.
#62
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#63
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GAAP isn't perfect and teasing out special items can play an important role in helping investors compare performance of the core business over time.
Who cares about the lazy? Certainly not UAL or DAL, as they are overwhelmingly owned by institutions.
#64
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Are you under the impression that any sizable number of people invest off of the headlines in press releases?
Quick question: if DL's specials are simply to fudge the numbers to their benefit, why did they call their MTM gains in Q3-13 a special item? And were you decrying them doing so at that time? It isn't fudging the numbers if you are consistent in your treatment.
GAAP isn't perfect and teasing out special items can play an important role in helping investors compare performance of the core business over time.
Who cares about the lazy? Certainly not UAL or DAL, as they are overwhelmingly owned by institutions.
Quick question: if DL's specials are simply to fudge the numbers to their benefit, why did they call their MTM gains in Q3-13 a special item? And were you decrying them doing so at that time? It isn't fudging the numbers if you are consistent in your treatment.
GAAP isn't perfect and teasing out special items can play an important role in helping investors compare performance of the core business over time.
Who cares about the lazy? Certainly not UAL or DAL, as they are overwhelmingly owned by institutions.
If u bother to read DL's earnings across multiple quarters you'll realize how many specials they include every single quarter. A special should be an unforeseen event that materially impacts your performance, not a place to hide managerial screw ups. Only in the airline industry where 75% of "profits" will vanish quarter over quarter over quarter in the name of specials.
#65
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They were stupid for even thinking about retiring the 763s (let alone the 752s) in the first place. DL and AA have much older ones that are sticking around, adding debt to get shiny new planes like the CO way is just a bad move. Wonder who was the smart guy at HQ that pointed it out to the HOU crew? Give that man a promotion.
#66
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I'm happy for UA front line employees that the profits are up. Maybe now that UA earned a decent profit, they will finally start serving decent coffee and food up front.
Austrian fields a very nice seat on their 767s - why can't UA?
#67
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GAAP isn't perfect.
"If u bother to read DL's earnings across multiple quarters you'll realize how many specials they include every single quarter. A special should be an unforeseen event that materially impacts your performance, not a place to hide managerial screw ups. Only in the airline industry where 75% of "profits" will vanish quarter over quarter over quarter in the name of specials.
#68
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The Straw Man Argument Is Not Convincing
Accountant here.
The true raison d'tre of GAAP is to allow meaningful comparison between companies.
Public companies in the US are obligated by law to report their financial performance based on generally accepted accounting principles, or GAAP. For companies outside the US a different standard of GAAP (as set per the country - IFRS might one day change this, but that day is not today) will apply.
GAAP works through standardization of information; specifically the standard treatment of business events (sales, expenses, losses, etc.) and the reporting thereof, and while this often works well to facilitate comparisons between companies issues can arise. Specifically the more complex an industry is - and aviation is no exception - the more GAAP struggles to standardize the results.
Picture in your mind a clothing store that only sells one size of suite and then picture that all executives were required to wear it without alteration or adjustment. You would see a harmonization in that everyone is wearing the same sized outfit but the fit would range between good to atrocious/comical as the executives would differ in size and shape based upon the nature of who they are.
This is both the strength and weakness of GAAP: it facilitates a framework for standardization but standardization is not a end in itself, it is a means to an end! Remember GAAP's purpose: to help investors understand the health of a business through comparing it to others business. It does not exist to standardize information for standardizations sake nor to file reports for reports sake.
Hence the "G" in GAAP: GENERALLY (as in NOT always)
In our one-sized-suit example if company performance = how well the exec looks, then there is some comparability that can be ascertained. Let's say all the airline execs were very tall with extremely short arms, then the same sized suite would fit all of them poorly and an investor at first glance might assume they are all performing poorly as they look atrocious in their GAAP suite.
Granted you could look to see which suit fit the best (or least worst) to compare the exces but ultimently bits of who they are would not fit well into the one-sized-fits-all approach as the one-sized-suit is making certain aspects look worse than what they really are, and that goes against the main reason of GAAP: to allow investors to accurately see the company (or how well the executive looks).
Hence you have the non-GAAP argument - this is akin to the standardized suit being tailored to shorten the arms but lengthen the legs. Granted a deviation has been made, but since better reflects the nature of the industry (as all the airline execs have short arms and long legs and they all do the alteration to an extent), you can see a better picture of the exec and compare them with their piers without a (at times) poorly fitted GAAP suit getting in the way.
As each industry will have their own quirks which are contradictory to GAAP an argument can be made to electively deviate from the GAAP treatment of items in favor of a non-GAAP approach, assuming there is a valid reason (e.g. doing so better reflects the true nature of the transaction, and thus presents a more accurate portraly of the company to the investor).
Currently if a company deviates from GAAP they have to list why (see below for UA's reasoning for doing so), present the GAAP numbers along side the adjusted numbers and provide a reconciliation for the non-GAAP to GAAP numbers.
This is incorrect.
While GAAP literature can be rather vague on defining special items such as non-reocurring vs. extraordinary (and IFRS does not even recognize an extraordinary item!) a key theme is that the special item is not reoccurring.
There are other nuances in how these will play out but in the case of UA accelerating the phase out of 145s (or DL with 747s), a clear argument can be made that this will not be a reoccurring expense.
It should also be noted that UA's continued catorigaztion of "special merger changes" into this year raised eye-brows (IIRC Jamie Baker (?) asked point blank when the charges would be over on the Q1 CC) as people questioned if the charge should be considered "special" considering the ongoing history of it.
Finally you can also have special items that are anticipated - for example UA might be planning to accelerate the retirement of their 747s in Q1 2015 but for a variety of justifiable reasons might not wish to share this information until they commit to it. Personal changes/layoffs/buyouts could also fall under special items (assuming they are considered non-reocurring) but they certainly may be anticipated.
Anyways the reason I spelled all this out is to address a few straw-men that seemed to be raised earlier in the thread:
The true raison d'tre of GAAP is to allow meaningful comparison between companies.
Public companies in the US are obligated by law to report their financial performance based on generally accepted accounting principles, or GAAP. For companies outside the US a different standard of GAAP (as set per the country - IFRS might one day change this, but that day is not today) will apply.
GAAP works through standardization of information; specifically the standard treatment of business events (sales, expenses, losses, etc.) and the reporting thereof, and while this often works well to facilitate comparisons between companies issues can arise. Specifically the more complex an industry is - and aviation is no exception - the more GAAP struggles to standardize the results.
Picture in your mind a clothing store that only sells one size of suite and then picture that all executives were required to wear it without alteration or adjustment. You would see a harmonization in that everyone is wearing the same sized outfit but the fit would range between good to atrocious/comical as the executives would differ in size and shape based upon the nature of who they are.
This is both the strength and weakness of GAAP: it facilitates a framework for standardization but standardization is not a end in itself, it is a means to an end! Remember GAAP's purpose: to help investors understand the health of a business through comparing it to others business. It does not exist to standardize information for standardizations sake nor to file reports for reports sake.
Hence the "G" in GAAP: GENERALLY (as in NOT always)
In our one-sized-suit example if company performance = how well the exec looks, then there is some comparability that can be ascertained. Let's say all the airline execs were very tall with extremely short arms, then the same sized suite would fit all of them poorly and an investor at first glance might assume they are all performing poorly as they look atrocious in their GAAP suite.
Granted you could look to see which suit fit the best (or least worst) to compare the exces but ultimently bits of who they are would not fit well into the one-sized-fits-all approach as the one-sized-suit is making certain aspects look worse than what they really are, and that goes against the main reason of GAAP: to allow investors to accurately see the company (or how well the executive looks).
Hence you have the non-GAAP argument - this is akin to the standardized suit being tailored to shorten the arms but lengthen the legs. Granted a deviation has been made, but since better reflects the nature of the industry (as all the airline execs have short arms and long legs and they all do the alteration to an extent), you can see a better picture of the exec and compare them with their piers without a (at times) poorly fitted GAAP suit getting in the way.
As each industry will have their own quirks which are contradictory to GAAP an argument can be made to electively deviate from the GAAP treatment of items in favor of a non-GAAP approach, assuming there is a valid reason (e.g. doing so better reflects the true nature of the transaction, and thus presents a more accurate portraly of the company to the investor).
Currently if a company deviates from GAAP they have to list why (see below for UA's reasoning for doing so), present the GAAP numbers along side the adjusted numbers and provide a reconciliation for the non-GAAP to GAAP numbers.
The Company evaluates its financial performance utilizing various GAAP and Non-GAAP financial measures, including net income/loss and net earnings/loss per share. The Non-GAAP financial measures in this report are presented because they provide management and investors the ability to measure and monitor the Companys performance on a consistent basis. The Company believes that adjusting for operating and nonoperating special charges is useful to investors because they are nonrecurring charges not indicative of UALs ongoing performance. In addition, the Company believes that reflecting Economic Hedge Adjustments is useful because the adjustments allow investors to better understand the cash impact of settled hedges in a given period.
Originally Posted by 787fan
A special should be an unforeseen event that materially impacts your performance
While GAAP literature can be rather vague on defining special items such as non-reocurring vs. extraordinary (and IFRS does not even recognize an extraordinary item!) a key theme is that the special item is not reoccurring.
There are other nuances in how these will play out but in the case of UA accelerating the phase out of 145s (or DL with 747s), a clear argument can be made that this will not be a reoccurring expense.
It should also be noted that UA's continued catorigaztion of "special merger changes" into this year raised eye-brows (IIRC Jamie Baker (?) asked point blank when the charges would be over on the Q1 CC) as people questioned if the charge should be considered "special" considering the ongoing history of it.
Finally you can also have special items that are anticipated - for example UA might be planning to accelerate the retirement of their 747s in Q1 2015 but for a variety of justifiable reasons might not wish to share this information until they commit to it. Personal changes/layoffs/buyouts could also fall under special items (assuming they are considered non-reocurring) but they certainly may be anticipated.
Anyways the reason I spelled all this out is to address a few straw-men that seemed to be raised earlier in the thread:
1. Special items taint the integrity of reported results [incorrect: special items can highlight non-reocurring items to give investors better perspective on the company]
2. GAAP is not perfect [the one-size-fits-all approach will, by definition have flaws, (thus companies may elect to present non-GAAP numbers along with GAAP numbers and disclose the non-GAAP to GAAP reconciliation) but it can and is used to present a meaningfully accurate assessment of the company]
3. Use of a special item(s) is an automatic condemnation of management/accounts [incorrect: management/accountants should alert investors to material non-reocurring income/expenses]
Glad to see UA finally having a good quarter - hopefully they can keep up the momentum! ^
2. GAAP is not perfect [the one-size-fits-all approach will, by definition have flaws, (thus companies may elect to present non-GAAP numbers along with GAAP numbers and disclose the non-GAAP to GAAP reconciliation) but it can and is used to present a meaningfully accurate assessment of the company]
3. Use of a special item(s) is an automatic condemnation of management/accounts [incorrect: management/accountants should alert investors to material non-reocurring income/expenses]
Last edited by J.Edward; Oct 23, 2014 at 8:23 pm Reason: spelling
#69
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It should also be noted that UA's continued catorigaztion of "special merger changes" into this year raised eye-brows (IIRC Jamie Baker (?) asked point blank when the charges would be over on the Q1 CC) as people questioned if the charge should be considered "special" considering the ongoing history of it.
Glad to see UA finally having a good quarter - hopefully they can keep up the momentum! ^
Glad to see UA finally having a good quarter - hopefully they can keep up the momentum! ^
This all said, I might briefly raise on issue, which is the difference between a one time cash expense and a one time write off/accounting change. For example, reporting a charge of $250M for a new labor contract payment is a real cash expense, so are a lot of the merger related charges. On the other hand, the write downs of 747s (Delta this quarter) or of 757/762/erj-135s (done by UAL in the last two years) likely don't impact the actual cash position of the airline.
Put another way the "one time" rule for specials does not fully account for the differences between one time accounting charges and one time cash expenditures.
#70
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Jedward ..I'm not a financial expert but rely on your profession for guidance in my work. I just wanted to note it's rare to see the combination of financial expertise and clarity of communication. Enjoyed your post.
#71
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I was just thinking the same. Probably $800 million of this is $59 TOD upgrade to kettles
The only "bad" part here is that the constant devaluation of everything from CPU's to redemption values will be credited with this, so it's not unrealistic to expect more of the same.
The only "bad" part here is that the constant devaluation of everything from CPU's to redemption values will be credited with this, so it's not unrealistic to expect more of the same.
So the ancillary growth rate last quarter was about 8%. This quarter was 11%.
Economy Plus led that growth, not upgrade sales.
This was the first full quarter Economy Plus was available in Amadeus / Sabre. They also improved the process of re-seating when there is an aircraft swap, so prepaid E+ customers have a better shot at keeping their seats.
"Ancillary revenue continued to grow in the third quarter, increasing approximately 11% per passenger and keeping us on track to achieve $3 billion in ancillary revenue in 2014.
During the quarter, Economy Plus revenue increased by double digits due to enhanced pricing optimization and a lower refund rate. We decreased the refund rate by implementing an improved solution for reseating customers during aircraft swaps. Additionally, we recently began to sell Economy Plus through the Amadeus and Sabre distribution systems, allowing our travel management partners and travel agencies to seamlessly book extra-legroom seats for our customers, further driving additional Economy Plus sales. We are pleased with the progress we're making on improving our revenue thus far, and we still have many more opportunities to optimize the value of our network."
What they did do though was improve non-ancillary first class sales. The premium paid first class load went to 40%, up from 28% last year. Delta is in the 50% range and has led the 'sell it for cheap' charge.
"our recently restructured premium cabin fares on many of our domestic and short-haul Latin flights added 0.5 point of PRASM in the third quarter and increased the premium payload factor on these routes by 12 points year-over-year to 40%. Second, our recent changes to the network and schedule are improving the "
Sorry guys, this is not the 'TOD' day of departure upgrades. It's making the advance price of first class competitive with the competition.
http://seekingalpha.com/article/2590...pt?part=single
#73
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Here are some facts.
So the ancillary growth rate last quarter was about 8%. This quarter was 11%.
Economy Plus led that growth, not upgrade sales.
...
What they did do though was improve non-ancillary first class sales. The premium paid first class load went to 40%, up from 28% last year. Delta is in the 50% range and has led the 'sell it for cheap' charge.
"our recently restructured premium cabin fares on many of our domestic and short-haul Latin flights added 0.5 point of PRASM in the third quarter and increased the premium payload factor on these routes by 12 points year-over-year to 40%. Second, our recent changes to the network and schedule are improving the "
Sorry guys, this is not the 'TOD' day of departure upgrades. It's making the advance price of first class competitive with the competition.
http://seekingalpha.com/article/2590...pt?part=single
So the ancillary growth rate last quarter was about 8%. This quarter was 11%.
Economy Plus led that growth, not upgrade sales.
...
What they did do though was improve non-ancillary first class sales. The premium paid first class load went to 40%, up from 28% last year. Delta is in the 50% range and has led the 'sell it for cheap' charge.
"our recently restructured premium cabin fares on many of our domestic and short-haul Latin flights added 0.5 point of PRASM in the third quarter and increased the premium payload factor on these routes by 12 points year-over-year to 40%. Second, our recent changes to the network and schedule are improving the "
Sorry guys, this is not the 'TOD' day of departure upgrades. It's making the advance price of first class competitive with the competition.
http://seekingalpha.com/article/2590...pt?part=single
However, regarding the comment that UA is making their F class prices more competitive, I do see this on a lot of domestic routes I fly.
#74
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Put another way the "one time" rule for specials does not fully account for the differences between one time accounting charges and one time cash expenditures.
I'm surprised they did as well as they did, frankly; but it seems that domestic demand is pretty robust, and obviously they weren't as hedged as DL on fuel, so they saved some hedging losses there.
They still have issues on the non-fuel costs, probably due to the cross-fleeting issue and SHARES.
The winter quarters will be more challenging as they're going to be seriously drawing down flying, which of course means less cash in to cover fixed costs.
#75
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Feb CLE-MCO FC NS RT $524
Jun CLE-LAX FC NS RT $809
Jul CLE-SFO FC NS RT $883
Not sure what's come over Jeff, but this is a change I like.
Internationally, however, it's a different story. Looking to book CLE-FCO-CLE in September (with only the outbound in BF) and I'm staring at $3,012. But it's way too early to find good fares for September travel.
RNE, not subject to PQD.