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Remember the experts and passenger-right advocates who claimed United Airlines might suffer financially after its employees in Chicago called airport security to forcibly remove a passenger from an overbooked flight?
The United States is a vast and wealthy country with only four massive airlines and hundreds of millions of potential travelers. Some, of course, look for the best overall experience, and on customer-satisfaction metrics, United may not match its peers, though it promises it’s trying to improve.
But many more travelers look at only two metrics when deciding which airline to book — price, and schedule. And as long as United can offer convenient flights at competitive prices, it will continue to win business.
United this week released strong preliminary estimates for its second quarter financial performance, suggesting that the dragging incident had little, if any, material affect on the carrier’s bottom line. In many cases, its estimates were better-than-expected.
United airline said its passenger revenue per available seat mile — an industry metric measuring how much an airline earns for each seat it flies one mile — will increase 2 percent, year-over-year.
United also told investors it expects second quarter pre-tax margin will rise between 12.5 and 13.5 percent. That was up from its April estimate, when United predicted a margin between 10 percent and 12 percent.
Importantly, United said unit revenues either matched or exceeded expectations in all markets except China and Hong Kong. The Chicago incident in April caused the airline considerable public relations problems in China, when video from it went viral on Weibo, the popular social networking site. At one point, Chinese state media suggested the doctor removed from the flight was Chinese American, though he was born in Vietnam.
But the airline blamed revenue problems in the region on “unfavorable supply and demand dynamics.” United is by far the biggest U.S. airline flying to Mainland China, with flights to Beijing, Shanghai, Xi’an, Chengdu, and Hangzhou. American Airlines and Delta Air Lines fly only to Beijing and Shanghai. All three airlines fly to Hong Kong, as well.
In a research note this week, Daniel McKenzie of Buckingham Research Group said China and Hong Kong might be improving, noting “recent booking trends point to stabilization,” though he added that “aggressive growth” from Chinese airlines presents a challenge. Andrew G. Didora of Bank of America said U.S. to China capacity will increase “double digits” in the fourth quarter of this year.
But most metrics are improving for United. Didora noted the airline is improving its earnings even while it is adding flights, with capacity increasing 4.2 percent, year-over-year. He called United’s estimated financial performance, “the highest growth rate for a legacy airline since 3Q14.”
Hunter Keay, an analyst with Wolfe Research, this week titled a research note “phew,” saying the airline’s investor update was, “was a relief and a positive surprise.” He noted United’s cargo volumes were “very strong” and that the airline’s new Basic Economy fares likely helped improve revenues.
American Airlines Also making money
United was not the only U.S. airline to delight investors this week. American, which had no major public relations flubs in the quarter, released its own investor update on Wednesday, estimating total revenue per available seat mile will increase 5 to 6 percent, year-over year.
American also told investors it will announce a pre-tax margin, excluding special items, of between 13 to 14 percent. It had earlier estimated a margin between 12 and 14 percent.
American was buoyed by a strong performance by its domestic and Caribbean markets, according to a report from Stifel analyst Joseph DiNardi.
U.S. airlines will begin officially announcing earnings on Thursday, with Delta Air Lines executives speaking with investment analysts. Delta is generally the most profitable of the three largest U.S. global airlines, as measured by margin.