United Witnessed A Decline In Q2’16 Earnings, Despite Substantial Fuel Cost Savings

by Trefis Team
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United Airline Holdings
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United Continental (NYSE:UAL) released its June 2016 financial results on 19th July 2016 [1], beating the consensus estimate for both revenue and Non-GAAP EPS. However, the company’s revenue took a beating compared to last year, falling a little over 5% year on year (y-o-y). The decline in revenue is attributable to the weak unit revenue in Latin America, Atlantic, and Pacific due to continued foreign currency headwinds. Moreover, the load factor declined by 40 basis points, highlighting United’s inability to optimize its existing capacity. This is in contrast to Delta, which in addition to increasing capacity, is also making strides to turn around its PRASM to positive by the end of the financial year.

In 2015, United’s tax bill had been low to negligible, owing to the utilization of income tax valuation allowance against the net operating losses it incurred. However, since the beginning of 2016, the carrier has been expending a substantial amount in income tax. Continuing this trend, the airline saw its tax bill increase in the June quarter. In addition to taxes, the higher salary costs and impairment charges related to Newark Liberty International Airport slots also weighed on the airline’s bottom line. As a result, United’s profits plunged 51%, despite lower fuel expense (-32% y-o-y) and the airline’s share buyback program.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for United Continental

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Notes:
  1. United announces June quarter profit, united.com, July 2016 []
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