spin88

UAL just posted new guidance for 1Q 2013. They reported primarily that costs have gone up substantially, hence will be larger loss than earlier predicted.

press release is here: http://ir.unitedcontinentalholdings....&p=irol-IRHome

Highlights: 1Q ASM down (5%), CASM +11.4 to 12.4%, Load Factor +2.7%, PRASM (midpoint) +5.9%.

They expect PRASM to be 13.11 to 13.24 c/mi, and CASM to be 15.49-15.58 c/mi.

These are very bad numbers, costs are through the roof, and given the extremely easy comps in February/March 2012 (in Feb 2012 UA said that unique factors depressed PRASM by 6%, and PRASM was also depressed in March due to the shares change over).

Until they release the yield numbers we will not not know, but I am guessing that UALs yield is nearly flat. While this suggests the March 2013 PRASM will be around +6%, with a (5%) cut in ASM, and an easy March 2012 comp it does not look good. It looks to me like the same under-performance in revenue that we have seen since the summer vs DL/US/AA is continuing; i.e. high revenue passengers are not returning, at least not at this point.

XCstud

You want to know how to make a quick million $$?

Take a billion dollars and invest it in an airline

iflyuaaa

i don' tthink this says as bad of things as we'd imply about losing high value fliers. if its mainly about cost, then that is different. seems their adjusted prasm is around flat which jeffy is not going to get dinged for.

Bulldog83

According to the release:

"The increase in first quarter consolidated unit cost as compared to prior guidance is primarily the result of four factors. UAL experienced
higher than expected winter storm activity, which reduced first quarter capacity by approximately 1% year-over-year and drove
increased operational recovery expense. UAL also increased its investment in aircraft maintenance, including additional preventive
maintenance, to improve fleet reliability. Salaries and wages increased, in part due to achieving a tentative joint collective bargaining
agreement with the IAM earlier than expected and the incurrence of certain crew-related expenses due to the grounding of the Boeing
787 fleet. Finally, in March, UAL agreed to sell up to 30 Boeing 757 aircraft to FedEx, accelerating $12 million of additional depreciation
into the first quarter and approximately $80 million into the full year 2013."

spin88

I am anticipating that DL's PRASM (adjusted for load) will be up about 4-5% on UAL for the quarter, AAs will be up by about 3-4% on UALs.

Revenue gets discussed on every call, it was identified as a problem on the 3Q 2012 call, Jeff said they were aggressively working to fix the operational problems, corporate traffic (i.e. high value traffic) would come back. 4Q 2012 Jeff said that things were now back to normal, people would come back since they saw the problems were fixed. Network and the corporate sales force would bring them back. When Jeff gets on the 1Q 2013 call, the line that people are coming back - magically - is not going to fly. It will be discussed, as well as how UA intends to address its cost issues. The higher costs were somewhat anticipated, but they have to be offset by revenue, that that has not materialized in this merger, rather revenue growth is down.

It will be an interesting call.

nova08

I've noticed a lower number of high end elites at least on the one route I typically fly, PHL-ORD. As a 1k flying Mon morning - Thurs afternoon/evening on ~W fares I've been receiving my upgrade 3-4 days in advance.

UAgeek71

As a side note, if they are expecting high $ traffic back - its not going their way for now - I just moved and started a new job this January with a very large corporation which purchases a huge amount of travel, in the neighborhood of 10+ million dollars a month and well over 100+million a year, and when I started, United was the preferred carrier. Just saw a new memo today, that United is being replaced with DL for the preferred carrier as of 4/1 - Trying to book all my scheduled travel before the weekend is over

Sykes

Did you even bother to read the entire release, or did you just stop at the numbers? The vast majority of the additional cost is from expected expenses that came early, most of which is actually good news (and, to be frank, already expected). I would be surprised if Wall Street reacts in any meaningful way at all.

spin88

Did you look at the numbers? Did the revenue numbers look good to you? Did the cost numbers look good to you? Am I wrong that this means that UA will lose MORE money in 1Q 2013? Does the market react when a loss is larger vs. smaller?

You are correct that it has been anticipated that UALs costs would go up. Lots of analysis pointing out that this was an issue and the contracts would have to be paid for (by finding more revenue). But (1) seeing those costs come through is different than talking about them, (2) still no FA K (so can't cross fleet FAs), and (3) this confirms that the March yield numbers are not back to normal, nor looking better, UA is still under-performing.

If you have a different analysis of the numbers (especially the revenue point, which is what I looked further at) please post them.

planemechanic

According to Jeff Smisek you are wrong.

If you are making $1 billion in profit then you cannot have "losses" getting bigger, since you have no loses.

spin88

ok, the consensus estimate today (before this new report) was a LOSS in the Q1 2013 of ($.85)/share. 90 days ago the consensus estimate was a LOSS of ($.48) /share. There are 332M shares outstanding.

Lets see what the consensus LOSS is when the results are in. I very, very, very seriously doubt that UA will make a profit in Q1 2013, but I've been wrong before... That said, my interest is, and remains on the revenue performance.

bocastephen

Depending on your perception of what UA needs to do, the cost numbers are either meaningful or meaningless - if you want to see UA get long term costs under control, and the source and type of revenue growth (or any revenue growth at all) is less important, then you might see a silver lining in these numbers.

If you are like me (and perhaps Spin88), more interested in the source and velocity of revenue growth, then we might see this guidance as a problem - especially as UA might not have any evidence to support its claim that higher spending customers are returning in significant numbers (which I don't believe they are) - in fact, from my perspective, any marginal revenue growth is coming from unbundled elite benefits sold to Kettles who are on UA in the first place because of cost/schedule/convenience - not because they want to be.

If they lose the Kettles, or the Kettles stop buying the benefits, that ancillary revenue will flatten, and without HVF revenue, the company could be in a world of hurt.

Who would YOU invest in - Kettles who are tempted by a $49 upgrade and you may or may never see them again (and if you do, probably won't buy another higher priced upgrade), or long term loyal HVF who fly a variety of fares and routes, book UA consistently (even against the logic of cost/time/convenience) and bring ancillary bookings via evangelism.

Which group is a source of long term revenue growth?

fastair

I find this part a bit funny: "Salaries and wages increased, in part due to achieving a tentative joint collective bargaining agreement with the IAM earlier than expected"

Voting for the IAM combined contract just ended the other day (via snail mail,) counting will be going on for a few more days. There is no joint TA with the IAM that has been passed (although if it is passed, it becomes effective on Apr 1.)

Sounds like they are counting their chickens before the votes have been counted. In defence, it does say "tentative", but couldn't they have either a) come out with this 1 month ago when the TA was written, or b) waited another 3 days for the votes to be counted? There are no costs that are increased due to the IAM TA unless it passes, and that is questionable.

cova

This keeps coming up - over and over - and UA still believes they make more money with TODs by shifting Kettles to F and long term loyal flyers to Y.

I think the idea of passengers avoiding UA because of transistion issues has past. Pre-merger UA 1Ks who used to be upgraded 90% of the time and now rarely get an upgrade - are just moving over to another airline.

spin88

The Source of revenue growth is important, and is what interests me. But the point that I see (and Jeff perhaps does not) is that passanger revenue is about 9 times "other revenue" (which includes bag fees, change fees, and it appears buys ups after the original sale of the ticket). So changes in PRASM have a huge impact on total revenue.

I actually think what you are seeing is legal weasel words. Per UA (my noting the qualifiers):

"The increase in first quarter consolidated unit cost as compared to prior guidance is primarily the result of four factors. UAL experienced
higher than expected winter storm activity, which reduced first quarter capacity by approximately 1% year-over-year and drove
increased operational recovery expense. UAL also increased its investment in aircraft maintenance, including additional preventive
maintenance, to improve fleet reliability. Salaries and wages increased, in part due to achieving a tentative joint collective bargaining
agreement with the IAM earlier than expected and the incurrence of certain crew-related expenses due to the grounding of the Boeing
787 fleet. Finally, in March, UAL agreed to sell up to 30 Boeing 757 aircraft to FedEx, accelerating $12 million of additional depreciation
into the first quarter and approximately $80 million into the full year 2013."

So the primary reason for higher costs were 4 factors, one of which - higher salaries and wages was "in part due" to the new IAM contract.

The other factors (shares, higher staffing) are not mentioned, and the IAM contract only "in part" contributed to higher labor expenses. The IAM contract was only a small, if any part, and was undoubtedly swamped by the higher staffing for SHARES and the higher pilot wages. But always good to blame the unions, right? So the costs of bad decisions are buried!

This is why I posted these numbers. If folks were coming back we would have seen it in the Oct/Nov/Dec period. We did not. Now we are in a new year, still not back. These folks did not stop flying, they have a new airline, and a new FF program, and that is what you would expect to see (as people change programs at year end). If this is correct, and I think the evidence strongly points to it (both the bad PRASM numbers and major capacity cuts - which you would expect if management, which has the actual numbers, saw their losing out with FFers) is very bad as you don't magically get back fliers who are now with new airlines/programs, unless you can demonstrate superior service, and UAs goal is to be at the absolute bottom of acceptable service.