United Airlines announced a record-breaking $1.7
billion in net income for the third quarter of 2015, but its $10.3 billion in
revenue was down 2.4 percent from the same period last year.
Consolidated unit revenue (passenger revenue
per available seat mile) for the carrier declined 5.8 percent in the third
quarter, an estimated 1 percentage point of that decline owing to the continued
softening of the energy market. With its main hub in Houston, United is
particularly vulnerable to downturns in the fuel sector, even as reduced fuel
prices contributed to a 10.7 percent reduction in the carrier's operational
costs for the quarter.
During the company’s
earnings call on Thursday, vice president and chief revenue officer James
Compton said the decline in the sector was not over yet. “We talked about [the demand
decline] being 20 percent in the first quarter, 30 percent in the second
quarter to 35 percent in the third. We continue to see it drift towards that 40
percent.”
Outside Houston, demand remained positive. Overall, airline
traffic increased 2 percent and the carrier pumped up capacity 2.1 percent, dropping
load factor to 85.6 percent for the quarter from 85.8 in the third quarter of
2014.
In terms of corporate travel improvements, United continues
to focus on replacing regional 50-seat aircraft with 76-seat, two-cabin planes.
Compton positioned the change as a response to business traveler demand. “We
know that our business customers prefer two-cabin aircraft over single-cabin,
50-seat aircraft,” he said. “We've responded by
significantly increasing the number of two-cabin regional jets or mainline
aircraft on routes where we previously flew small regional jets. ... To that
end, 79 percent of United's top 100 business markets are now operated
exclusively with two-cabin aircraft on weekdays. This is up from 59 in November
2013.”
The change also provides United with additional
opportunities to convert ancillary revenue on business-class and
premium-economy seating. “We are seeing the benefits of the product of the two-class
cabin,” said Compton. “One: It's just more competitive in these high-basis markets.
Secondly, [it] is introducing the ability to drive ancillary revenue, which
we've been very successful on this year.”
United's earnings call came on the heels of
new CEO Oscar Munoz’s heart attack and subsequent medical leave, and United
acting CEO Brett Hart acknowledged the impact of Munoz's six-week focus on
front-line employees and customer service. He alluded to upcoming product and
service announcements that would improve operations, as well as the in-flight
experience, intended to drive demand and increase margins.
“Like Oscar, I believe United has the people, the network
and the assets to achieve the same or greater margins as our peers,” said Hart.