United Airlines Vows to Extend Profit Gains After a Sizzling 2018

(Bloomberg) -- United Continental Holdings Inc., seen until recently as the laggard of the airline industry, promised Wall Street that the improvement in its earnings performance has plenty of room to run. The shares jumped the most in six months.

“The pipeline of ideas and changes was not just for 2018,” Chief Commercial Officer Andrew Nocella told analysts and investors on a conference call Wednesday. Much of last year’s moves extend into 2019 “and then there is a whole host of other initiatives that come online.”

The Chicago-based carrier is bucking the industry gloom stoked by Delta Air Lines Inc. and American Airlines Group Inc., which cautioned investors this month about their ability to push fares higher. United, meanwhile, is pushing ahead with an aggressive expansion plan, stepping up its luxury offerings and planning tweaks to its new revenue-management system.

“Overall the guidance is encouraging as revenue growth continues into 2019 despite Easter moving to the second quarter and a weaker macro environment in certain international markets,” Cowen & Co. analyst Helane Becker said in a note to clients. “The company did a great job executing their strategic plan in 2018.”

The shares surged 6.4 percent to close at $86.36 in New York, the biggest gain since July 18. United climbed 24 percent in 2018, the only advance among large U.S. airlines.

‘Heaven and Earth’

United’s adjusted earnings rose to $9.13 a share last year, easily exceeding the $8.78 average of analyst estimates after the company blew past analysts’ estimates in the fourth quarter.

This year, United said it expects to earn $10 to $12 a share, compared with analysts’ forecast of $10.99. The company reaffirmed its target of earning as much as $13 a share in 2020, saying that the goal is built to withstand Brent crude prices as high as $80 a barrel. The oil benchmark currently trades at about $61 a barrel.

“We are committed to, as we said before, moving heaven and Earth to hit our numbers,” United President Scott Kirby said on the conference call.

In the current quarter, revenue for each seat flown a mile will extend recent gains with an increase of as much as 3 percent this quarter, United said. Lucrative corporate bookings rose 11 percent last week, and Kirby said the first week of the year is a “reasonably good” indicator of economic health.

Shutdown Risk

There are short-term risks. A percentage point of United’s passenger revenue forecast is under threat from the U.S. government shutdown.

United has major exposure because of its hub at Washington-Dulles, the capital’s main international airport. United hasn’t estimated the cost of the shutdown, Kirby said. Delta said the closing was shaving $25 million off monthly sales.

Elsewhere, United is pushing ahead with the ambitious three-year expansion program it began last year to regain its “natural share” of travelers at three mid-continent hubs: Chicago, Denver and Houston.

The company has reworked its flight schedules in Chicago and Houston and plans to begin flying its adjustments at Denver on Feb. 14. The changes are designed to increase profitable connecting traffic.

First-quarter seating capacity will climb as much as 6 percent, United said, in line with its long-term growth plan. While much of that expansion will continue to focus on regional flights in smaller cities, it will also involve swapping larger mainline aircraft into cities where the carrier had often flown regional jets.

Hub Test

That strategy “will test the theory of how much United can continue to expand domestic hub capacity and maintain yield momentum,” Barclays Plc analyst Brandon Oglenski said in a note to clients.

Beyond its hub revamp, United has focused on improving schedule reliability, as well as customer-service training for flight attendants and other employees who interact with travelers. This year, United will bring its 25,000 flight attendants to Chicago for two-day training sessions aimed at bolstering a more entrepreneurial culture.

United’s shift to a redesigned revenue-management system last year has improved the airline’s ability to forecast seat demand and boost profits. It’s also wooing business travelers with more Polaris luxury lounges and cabins.

This year, the airline will begin deploying Boeing Co. 787-10 Dreamliner jets on its European network, a move that is expected to reduce fuel costs on those routes. It also plans to trim some departures before 6 a.m., given the greater revenue potential of later flights, Nocella said.

To contact the reporter on this story: Justin Bachman in Dallas at jbachman2@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson, Richard Clough

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