Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=112449
Story Retrieval Date: 11/20/2014 8:10:55 PM CST
Source: Yahoo! Finance
Shares of UAL Corp., the parent of United Airlines, dropped 6.1 percent Wednesday after it reported a $936-million loss in fuel hedges caused a $1.3 billion loss in the fourth quarter. Passenger revenues declined as well. Despite the loss, the results beat analysts’ estimate.
UAL's loss was equivalent to $9.91 per diluted share, compared with a loss of $53 million, or 47 cents per diluted share, in the previous-year period.
Excluding non-cash fuel hedge losses, Chicago-based UAL lost $547 million, or $4.22 per diluted share, compared with the analysts’ consensus estimate of a loss of $4.43 per diluted share compiled by Zacks Investment Research Inc.
"I knew they’d take a big hit,” said analyst Basili Alukos of Chicago-based Morningstar Inc. Alukos said he expected significant losses because of UAL’s fuel hedge positions, which locked in high prices earlier in the year and forced the company to pay above-market rates when fuel prices later dropped.
"If you’re an airline, hedging isn’t your forte – and [UAL] proved that,” Alukos said.
As passenger revenues have dropped amidst a struggling global economy, UAL has adjusted its service to accommodate fewer fliers.
"We are clearly seeing less demand in our product,” United Executive Vice President and Chief Operating Officer John Tague said in a conference call. UAL reported that its total passenger revenue for 2008 decreased 8.7 percent from the previous year.
In response, the company has reduced its flight capacities by 10.6 percent, including cutting 100 aircraft from its fleet, with about half of the planes already removed, said Kathryn Mikells, United’s senior vice president and chief financial officer. UAL said it will further cut costs by reducing the number of salaried and management employees by an additional 1,000 to total 2,500 cuts since the beginning of last year.
In a sluggish market, UAL has focused on raising additional cash, and plane-financing deals have contributed to its efforts, the company said in a statement. Aircraft-financing transactions, asset sales and stock issuances raised $388 million in the quarter, and the company reported $2.0 billion in available cash.
"We’ve done an extraordinarily good job building up liquidity,” Mikells said.
UAL gave no earnings estimate, but said it expects its capacity to drop by 12.5 to 11.5 percent in the current quarter compared with the same period last year.
The analysts’ consensus estimate for the current quarter is a loss of $2.21 per diluted share, according to Zacks.
For the year ended Dec. 31, UAL posted a loss of $5.3 billion, or $42.21 per diluted share, compared with a profit of $403 million, or $2.79 per diluted share, in the previous year. Revenues were flat at $20.19 billion compared with $20.14 billion.
UAL stock closed Wednesday at $10.91, down 71 cents.