EWR764

Aggressive growth plans for UA going forward. Theoretically impacts competitor yields too.

sinoflyer

​​​​​From a revenue perspective, UA’s 17Q4 passenger revenues ($8.1B, +4.1% YOY) are neck-and-neck with DL’s ($8.5B, +6.6% YOY). Aside from my skepticism that UA would be able to sustain PRASM as it embarks on aggressive growth, AA, other airlines, and especially DL will likely respond in ways that will also hurt their unit revenues. Thus the after hours panic.

Talk about throwing cold water on a decent quarter/year. BTW, I can only feel embarrassment for an “analyst” at another investment website who had predicted that UA would lose money last quarter. That’s some serious egg on the face.

spin88

United's 4Q passenger revenue was up 4.1%, on ASM of +4%. Load factor fell .7%, with PRASM up .2% to 12.43 c/mi. United's operating income was 729M (down 27.5%).

DL recorded a $60M impact from losing power at ATL and winter weather, despite this passenger revenue was up 6.6%, on +2.3% ASM growth, load factor was +.1%, giving PRASM up 4.2%. DL's operating income was up 16.9% to $1,193M.

Delta got better, United stagnated in revenue as its costs went up. United added capacity, had flat PRASM, Delta added slighly less capacity, had PRASM growth of +4.2%

And Delta is building from a higher place. Delta got 14.15 c/mi in PRASM in 4Q, United got 12.43 c/mi. In Q4 2011 before Jeff & Co. applied their "we can cut product/service as people have to fly us for network" approach, United got 12.95 c/mi, Delta got 13.12 c/mi. Delta has grown PRASM by 7.9%, United's has shrunk by 4.2%. That is a 12.1% difference in performance.

If United had matched Delta's PRASM growth over the last 5 years, it would have had another $978M in revenue this quarter, which would have more than doubled UA's operating profit.

goodeats21

PsiFighter37

As a general comment, wouldn’t there be some expectation that UA, compared to DL or AA, would have lower margins because a number of their hubs (LAX, EWR, and ORD in particular, and arguably SFO given how prominent the tech scene is) are highly competitive markets? Versus an AA hub in DFW or DL hub in DTW, for example?

Not trying to justify what might be poor relative performance, but I do think UA is at a disadvantage given their hub structure vs. their competitors.

fly18725

I don’t think PRASM growth should be particularly meaningful to us as customers. At a basic level, an increasing PRASM trend means we’re paying more. As good FlyerTalkers, we all want to get more for less. The disappointment over not paying more to fly United continues to be perplexing, since it is difficult to argue that we’re getting more in domestic economy (the biggest component of overall PRASM).

Of course, investors will make an opposing argument and a comparison of Delta and United’s revenue trends is particularly favorable to traders of DAL$ and holders of UAL$ short positions.

United’s capacity guidance that is getting investor/analyst attention, and will coincidentally be impacting PRASM in 2018, is meaningful to customers. Domestic capacity growth, including increasing the utility of the network with more routes/destinations/connection opportunities, is positive (both short- and long-term) for customers, but negative in the short-term for investors.

I would note that financial performance is highly relevant to customers when it raises questions about viability: it is risky to build status or accrue miles in the program of an airline that is likely to become insolvent. Financial underperformance is less relevant to us as customers and even counterproductive to our interest.

halls120

I'd rather pay more to get more than try to pay less and get more. The latter proposition is why we have shrinking seat widths, less pitch, less seat padding, increasingly claustrophobic lavs, and poor food and drink. YMMV, of course.

AAExPlat

Yeah. They talk a big game, but in the meantime, AUS-EWR goes to RJs for multiple frequencies a day which makes ZERO sense. AUS is a high volume and high yield market (look at the airfares out of AUS) and yet we are handed RJs to EWR during the winter months. The actions are not consistent with the company line IMO.

Kacee

Somewhat lost in the PRASM debate is UA's big operational improvement. The gains in on time performance and completion rate are pretty impressive.

fly18725

I think we're describing our preference for superior value in different ways. Regardless of the specific language used, I don't think underperformance in quarterly PRASM trends is contradictory to the interest of most FlyerTalkers.

We should care about how the airline is investing, growing, and performing (operationally). It may be disappointing for some stock traders, but the trend line is pretty positive in these areas.

COSPILOT

Which is why I said the past, not now. I forget who from UA said that it was a mistake to shrink years ago while Delta and American grew, but past management choices were mentioned. No big deal, as I'm a mostly happy UA flyer, but I took from the call that it would take more time for UA to play "catch up" to the competition.

3Cforme

The remarks about 50-seaters I do not understand. They already use far more 50-seaters than DL even though total domestic RPMs are smaller. Running CR2/E145 against DL CR9/E75 is tough to win.

Kacee

It's a mixed bag. I think the concern is it leads to cost-cutting and putting off capital improvements.

And we're certainly not seeing any reduction in ex-US international premium cabin fares; to the contrary, UA has been increasing those fares recently, perhaps testing its theory that it has a "natural advantage" at certain hubs.

EWR764

I think they recognize that (Kirby said as much several times) but it is clear right now that domestic growth, especially to small "connectivity" markets is more important than waiting for any of the following:
- a new pilot agreement with revised scope to permit the operation of more 76-seaters, including larger/heavier variants
- a new small narrowbody (NSNB) for mainline
- more deliveries of new/used A32x/737

The CRJ flying can be spun up and drawn down quickly, as necessary. It's subpotimal from a passenger perspective, and I think they realize that, as the move is being billed as "temporary". Time is clearly of the essence, which is why UA was willing to come back to the negotiating table with ALPA earlier than the amendable date. Whatever agreement United secures with its pilots will give us a clearer picture of what kind platform(s) UA's long-term domestic capacity growth will be built on.

CALMSP

if its the E75, is it really a bad thing?