Neil35

Your statement reminds me of something that I've suspected for months. It's about the new policy of PQD-based RDM accrual starting March 2015.

Anticipating this change I have moved up a couple of planned trips whose timings are slightly flexible into the first two months of 2015. Further, to ensure more predictable airfares I also booked those trips a couple of months earlier than usual. The effect on UA's top lines is that they got my money in Q3 that they normally wouldn't have until Q4 or even next year.

My suspicion has been that there could be enough people who shared this line of thinking and acted on it. This would have an effect of artificially and temporarily bumping up UA's revenues in Q3.

If this is the reason for UA's improvement, it also explains why AA isn't seeing the same effect. Those on the dAArk side simply don't have any incentive to change their booking behavior and pay AA before their usual due date.

sfozrhfco

DL's traffic was up 5.4%, B6 was up nearly 10%, AA increased capacity by 1.6%, and even WN increased capacity by .7% and increased PRASM by 5%. UA is the only major carrier that continues to shrink--after even larger decreases in September 2013, so it is no surprise that PRASM was slightly better than originally predicted. The big question still remains how much UA needs to continue to shrink to really turn things around and how much the growth of other airlines will hit UA in the long term. Maybe they will find the sweet spot or maybe other airlines will just continue to eat away at them. The end result is anybody's guess.

UA-NYC

Very good points. When you create good YOY comps by referencing a shrinking/weak quarter, of course halfway decent results will be overly magnified.

Looking forward to the "official" results. Just have to deal with some possible stock price manipulation in the short term

goodeats21

I am not very knowledgeable about accounting practices in the airline industry, but I would think that quarterly results would not be impacted much by future bookings. I would expect that the revenue is only accounted for (booked) when the flight actually operates, which would then be offset by the expenses to determine profit. Prior to that, I would bet it is in some type of holding status.

Advanced bookings could be helpful for cash flow type of needs, but pretty sure it doesn't have an impact on quarterly results...but I would think others could answer more definitively.

BearX220

Maybe UA's brilliance has silenced its critics. Maybe a lot fewer people care what happens to UA anymore.

An airline that can't do well in Q3 in this (less competitive) environment would be in serious trouble indeed. UA is not in serious trouble but appears committed to offering less product, with less frequency, on a smaller network, for higher fares, with minimal rewards for FFers, and as little customer service as they can pull off with a straight face. I worry about the gloomy long-term implications of that strategy, even in this reduced-competition climate. UA is being challenged on many fronts. A company on a downward trajectory can still make a good profit while abdicating its market position. Sears, Roebuck made money for years while becoming irrelevant.

The next recession will test all remaining airlines but especially UA's you'll-fly-us-because-you-have-to approach.

Neil35

It's definitely possible.

I am no corporate accountant myself. It's only a speculation on my part. I am curious whether my early booking has any relevance in UA's Q3 figures.

FWAAA

No. goodeats21 was right - advance purchase of tickets has no impact on revenues until the flight departs. That's when fares become "revenues."

Advance ticket sales affect the balance sheet, not the income statement. The purchase of a ticket results in an increase in cash and a corresponding liability which UA calls "Advance Ticket Sales." Generally, that liability grows during the first and second quarters as customers buy their summer holiday travel. Then, that entry generally shrinks in the third quarter as those tickets are flown (and their fares become "revenue").

Pedantically, there is one way that advance purchase of tickets affects revenues: if more people buy tickets well in advance, then future revenues likely will be lower than if more people wait until right before departure to buy their (more expensive) tickets.

fly18725

UAL guided for 0.5% capacity increase in 3Q14. It's the smallest growth, but growth none the less.

The statement that UAL will continue to shrink is false and makes it difficult to rationally approach the other claims based on this thesis.

FWAAA

UA did shrink in 2013 compared to 2012: Consolidated ASMs declined 1.4%

During the first two quarters of 2014, UA did shrink compared to the first half of 2013: Consolidated ASMs declined 0.2%

A slight capacity bump in the third quarter of 2014 does not prove that UA is finished shrinking.

The bolded portion I quoted above is your opinion based on your analysis and projections, but we don't know whether UA will continue to shrink (as it has been doing). UA got smaller in 2013 and reduced capacity in the first half of 2014. That's fact. Not false.

A slight bump in capacity during the 3rd quarter doesn't mean that UA will grow during the 4th quarter. In fact, it's a near-certainty that UA will contract in the 4th quarter.

Neil35

Thanks for the explanation.

UA-NYC

Quit bringing your gun to the {unneeded word deleted} knife fight

HNLbasedFlyer

You seem to be very against reducing capacity - reducing capacity seems to make sense to me to get rid of inefficient routes and drive up load factors and price - and ultimately profit. No?

spin88

The market loves a recovery story. Lots of folks have bought/held UAL stock on the assumption that it had to turn around.

This is my view, as UAL shrinks, DAL and foreign competition is growing. I am curious to see the results when they are out, and we will know if (1) United has actual growth in revenues by attracting new high value passangers (long term what it needs), or (2) is cutting which allows it to charge a little more on those routes it does not have as much competition on. (short term gain, but harms in the long term).

It does appear that AA has hit a bump in the road, and how Parker handles this (did rolling out changes hurt them with High Value Fliers?) will be interesting. He has a difficult balancing act. Horton did gang busters with a carrier in BKR in attracting traffic. The larger size of AA should make it much more attractive to HVFers, and it should outperform. If not, then (as with Jeff) expect big questions.

It appears from the fleet plan, and major pull downs in 1Q 2015, that the airline will continue to get smaller in ASMs compared to other airlines. But YTD UAL's ASM is +.1%, the guidance for 4Q2014 is for ASM of +.5%, so ASM wise there will be cuts domestically (like 1.5%), and growth in international ASMs.

Looked at in RPMs (the actual number of passengers), its clear that UAL is relatively shrinking,and dramatically so.

2011 UAL had 181B RPM, in 2013 it had 178B

in 2011 DAL had 168B RPM, in 2013 it had 173B

in 2014 YTD, UAL is up .2% in RPM (to 156.3B), and DAL is up 4.1% (to 154.9B).

Delta projects a 3% raise in ASM in 4Q 2014, United projects a .5% raise in ASMs.

My guess is that when the dust clears, Delta will pass UAL to be the second largest airline this year.

Anyway, waiting for the actual results, and if UAL does well, good for them, but I think the jury is still well out on whether becoming smaller is the right course in a country with three companies all bidding for corporate contracts.

fastair

Good eats and FWAAA r correct. That's why you often see adjustments AFTER the quarter (retroactively) adjusting for higher/lower than anticipated settlements on already flown interline tickets.

spin88

I am of a different view, in that we now have three major carriers bidding for customer loyalty/contracts for HVFers. Coverage is important. There are e.g. a lot of corporate accounts (and individual fliers) that do a lot of west coast travel, and United's pull back at SEA/PDX/PHX and some at LAX will impact where they go.

United projected $800M in extra revenue "synergies" from the merger, mostly due to having a bigger network and being better able to compete for the business of HVFers. I find it hard to believe that process does not also work in reverse shrinking frequency/network.