Weather, Fuel Prices... And Labor Issues... To Blame
A fierce weather system
over the busy holiday travel season conspired with high fuel prices
and labor discord to send profits at United Airlines parent
UAL tumbling for the fourth quarter of 2007. The airline chalked up
$53 million in losses, equivalent to a per-share drop of 47
That amount was a lot less than expected, reports USA Today; a
survey conducted by Thomson Financial predicted a loss of 89 cents
per share. It's also less than the $61 million United lost during
the same period in 2006... but still marks a downward shift in
airline profits, as increasingly turbulent economic conditions hit
US domestic airlines hard.
Revenue for the nation's second-largest carrier was up 9.7
percent, to $5.03 billion. Higher ticket prices contributed to much
of that increase, but still weren't enough to offset record prices
for Jet-A. United said its fuel prices increased $359 million in
the fourth quarter.
United blamed poor December weather for the cancellation of some
2,350 flights... but that excuse didn't fly with at least one
analyst, who placed a spotlight on the airline's increasingly
hostile relationship with its workforce. As ANN reported, Soleil
Securities Group analyst James Higgins told investors earlier this
month of "rising evidence" that organized 'sick-outs' by pilots
contributed to the airline's abysmal performance in December, which
saw United rack up twice the industry average number of delays.
"We believe UAL management's view that weather was a key factor
behind the many December flight cancellations, but also think pilot
behavior exacerbated the situation," Higgins said. "The pilots'
anger is manifesting itself in several ways. Most notable is a
perfectly legal refusal to accept flying beyond amounts specified
in their contract. We also believe UAL is facing increasing pilot
sick calls, among other actions that hurt operations and
Despite its Q4 losses, United was still able to scrape together
a net income of $403 million for all of 2007, marking the airline's
first full-year profit since 2000.
In a message to employees, United CEO Glenn Tilton said the
airline "made real progress in 2007," citing an operating profit of
about $1 billion for 2007. The airline's operating margin more than
doubled, he added.
"We made significant
financial strides in 2007 -- delivering among the best revenue and
free cash flow performance in the industry, paying down more than
$2 billion of debt and continuing our focus on cost control," added
Chief Financial Officer Jake Brace.
In a move unlikely to win any more favors from United employees,
however, the airline plans to distribute $250 million to
shareholders Wednesday. Labor unions have already expressed their
anger at that plan, saying United should be sharing profits with
its workers who took heavy pay cuts under bankruptcy.
J.P. Morgan analyst Jamie Baker notes United appears to be
heading towards an even bigger loss for the first quarter of
2008... but adds United is in a good position to offset some of
that loss, by trimming capacity.
"We view United's ability to further downsize as better than
most, with an estimated 100 aircraft or so either unencumbered or
coming off lease," he said. "Additionally, United's pilot contract
does not appear to imperil its ability to shrink should conditions
And, of course, if that fails... there's always the possibility
of a merger. Curiously, that's a subject Tilton -- a fierce proponent of industry
consolidation -- avoided bringing up in United's