Skift Take

The need for quick returns is undoubtedly prompted in part by news that American Airlines will soon replace United as the country's largest airline.

United Continental Holdings Inc., the world’s biggest airline, said it will cut annual spending by $2 billion and boost sales and earnings under a plan to return capital to shareholders by 2015.

The carrier didn’t give specific details in its statement today on how it would achieve the cost cuts and boost revenue from sources other than fares by $700 million a year. The plan was outlined after a series of website and operational issues snarled flights, drove away some customers and eroded sales.

United combined with Continental Airlines in 2010 and has struggled since then to control costs that are growing faster for each seat flown a mile than revenue on the same basis. Profit growth trailed that of competitors in the last quarter.

“We are committed to achieving sufficient and sustainable profitability that will benefit all of our stakeholders,” Chief Executive Officer Jeff Smisek said in the statement at the start of an investor presentation in New York, the first for the combined airline.

The carrier said it “aims to increase pretax earnings by two to four times the current level over the next four years and to generate sufficient cash to begin allocating capital to shareholders by 2015.”

United didn’t say whether that means it intends to start paying a dividend on its shares. Delta Air Lines Inc. and Alaska Air Group Inc. initiated such payments this year. Southwest Airlines Co. announced a quarterly payout in July that it said was its 148th consecutive dividend.

Shifting Planes

United also will shift use of some of its largest planes, canceling flights between Seattle and Tokyo, and Tokyo and Bangkok. A smaller plane will be used for flights between Tokyo and Seoul. A second daily Houston-Tokyo flight will be added and United will put its Boeing Co. 787 Dreamliners into new markets.

While United said it would reduce fuel consumption and sourcing costs and improve productivity, maintenance, inventory processes and distribution, the company detailed no specific actions to achieve those steps.

The airline said it would generate $3.5 billion in ancillary revenue by 2017 through new purchase options for customers and improved pricing on existing products. It also will introduce a redesigned website that will be unveiled in phases over the next year.

United’s third-quarter pretax margin of 5.8 percent trailed the 11.5 percent at Delta, 9.5 percent at US Airways Group Inc. and 9.2 percent at Southwest.

Maintenance Issues

In October, Smisek said the carrier had addressed maintenance issues with its biggest planes that resulted in them being placed on less-than optimal routes. Those changes are expected to create a $40 million annual benefit, the airline said. United also has resolved a revenue management system error that caused it to sell too many low fares for too long.

United has suffered at least four public computer disruptions from March 2012, when it switched reservations systems, through mid-September of this year. In the most recent incident, United agreed to honor $0 fares mistakenly sold on its website for several hours. The carrier blamed the error on faulty reservations data and had to close the booking engine on its website to fix the error.

The carrier has seen revenue falter in China as increasing flights to the world’s most populous country have eroded fares. United, the biggest U.S. carrier on flights to China, has said it carried fewer passengers for average lower fares because of that competition.

Last month, United was fined $1.1 million by U.S. regulators for stranding 939 passengers on 13 planes for longer than federal rules permit as thunderstorms disrupted traffic at Chicago’s O’Hare airport in July 2012. It was the largest penalty since such rules took effect in 2010.

Editors: John Lear and Stephen West.

To contact the reporter on this story: Mary Schlangenstein in Dallas at [email protected] To contact the editor responsible for this story: Ed Dufner at [email protected]

November 16, 2022
Dallas-Fort Worth, TX and Online
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Tags: delta air lines, united airlines

Photo credit: A United Airlines jet departs Seattle-Tacoma International Airport in Seattle. Elaine Thompson / Associated Press