Source: Associated Press
Author: Dave Carpenter

UAL Expects to Post First Profit Since 2000, but It Will Be Short of What Some Rivals Reported

CHICAGO (AP) -- United Airlines parent UAL Corp. confirmed Monday it made its first profit in six years in the second quarter, earning an estimated $119 million that beat Wall Street's expectations but fell short of other U.S. airline companies.

Higher fares and packed planes helped the company post double-digit operating revenue growth in its first full quarter out of bankruptcy, and cost controls improved the bottom line.

Based on the preliminary results announced by the company a week ahead of its formal earnings report, it will be UAL's first result in the black since a $408 million profit in the second quarter of 2000. That also was its last profitable year before high costs, management missteps and the 2001 terrorist attacks forced it into bankruptcy.

The Elk Grove Village, Ill.-based company emerged from bankruptcy protection Feb. 1 after 38 months of restructuring. Despite soaring fuel prices and some observers' concerns that its cost structure remains too high, it has benefited like other airline companies from a series of fare increases imposed this year without driving customers away.

While a landmark for the nation's second-largest airline, the profit lagged those of other carriers that have reported second-quarter results. AMR Corp., the parent company of larger rival American Airlines, reported $291 million in net income last week while Continental Airlines Inc.'s profit was $198 million and Southwest Airlines Co.'s was $333 million.

"Obviously it represents a significant improvement," said Philip Baggaley, airline analyst for Standard & Poor's Corp. "The earnings are not quite as strong as those reported by AMR or Continental (but) they point out a number of items that they characterize as unusual or non-recurring."

Baggaley noted, however, that while United's passenger revenue per available seat mile was comparable to American's, its operating cost per available seat mile of 11.43 cents was higher than American's 10.88 cents.

Calyon Securities analyst Ray Neidl said the projected profit was "not that great."

"If they couldn't make a profit this quarter, then they had some real problems," he said. "United still has some work to do in cutting their (non-labor) costs."

UAL said the second-quarter guidance was designed to help potential investors assess a $726 million debt offering mandated by its bankruptcy reorganization to take place by Aug. 1. The offering will partially compensate employees for losses incurred when the company terminated and replaced its pension plans.

It estimated net income at 93 cents per share for the three months ended June 30. Excluding a severance charge of $22 million, earnings would be about $141 million.

"We expect to report results that exceed current second-quarter consensus expectations because of the continuing benefits of our restructuring, strong revenue growth, and our cost-control efforts," said Glenn Tilton, United's president, CEO and chairman.

Wall Street had been expecting earnings of 46 cents per share, according to a Thomson Financial survey.

UAL expects operating revenue to rise 16 percent to $5.1 billion from $4.4 billion last year. It said average jet-fuel costs rose 27 percent to $2.16 per gallon in the quarter.

Shares in the company rose $1.68, or 6.2 percent, to $28.63 in afternoon trading on the Nasdaq Stock Market. They remain well off the $40 level where they began trading in February.