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United Announces $3B Buyback as Unit Revenue Drops & Profits Continue to Rise

On the heels of reporting weak second-quarter revenue and record quarterly profit, United is launching a $3 billion share buyback program.

United Airlines announced an additional $3 billion share buyback program last week, despite reporting a 4 percent year-over-year drop in 2015 second-quarter revenue and a 3.4 percent decline in consolidated passenger revenue for the same period.

The legacy carrier expects to complete the additional $3 billion share repurchase program by the end of 2017. In its 2015 second quarter, United prepaid approximately $800 million of debt, contributed $620 million to its pension plans and returned $250 million to shareholders as part of its existing $1 billion buyback program.

“The $3 billion share repurchase program we announced today demonstrates the confidence we have in our future,” said Jeff Smisek, United’s chairman, president and CEO. “We will continue to invest in our customers, assets and our people, and remain committed to improving our balance sheet, expanding our margins and improving our return on invested capital, and expect our third quarter pre-tax margin to be between 13.5 and 15.5 percent, excluding special items.”

United earned an 18.2 percent return on invested capital for the 12 months ended June 30, 2015. The company reported second-quarter 2015 net income of $1.3 billion, or $3.31 per diluted share, excluding $67 million of special items. Including special items, UAL reported second-quarter net income of $1.2 billion, or $3.14 per diluted share.

According to Thomson Reuters IBES, United’s net income fell in line with analyst’s average estimates.

For its 2015 second-quarter, United posted total revenue of $9.9 billion, a 4 percent decrease year-over-year. Second-quarter consolidated passenger revenue decreased 3.4 percent to $8.7 billion, compared to the year-ago period.

Second-quarter ancillary revenue per passenger rose 6.7 percent year-over-year, cargo revenue decreased 1.3 percent year-over-year to $229 million during the same period. Other revenue in the second quarter decreased 9.6 percent year-over-year due to the reduction in sales of fuel to a third party.

Consolidated revenue passenger miles rose 0.7 percent and consolidated available seat miles increased 2.3 percent year-over-year for the second quarter, resulting in a second-quarter consolidated load factor of 83.9 percent.

Second-quarter 2015 consolidated PRASM fell 5.6 percent and consolidated yield declined 4.1 percent compared to the second quarter of 2014.

“This quarter, we continued to build and refine our route network, including announcing the move of p.s. transcontinental service to our global gateway hub at Newark Liberty Airport and forming a long-term partnership with Azul Brazilian Airlines,” said Jim Compton, United’s vice chairman and CRO. “We will continue to improve our leading network by focusing on our strengths, while investing in our people, fleet and products to increase revenue and deliver a flyer-friendly customer experience.”

[Photo: United Airlines]


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rylan July 28, 2015

Yup... Overall revenue down, yet 'ancillary', i.e. junk fee revenue up.