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Integration-related costs deepen United Air's loss

by Aubrey Pringle
Jan 24, 2013

UAL4Q chart

Aubrey Pringle/MEDILL

United Continental shares have been relatively stable since the merger in October 2010.

United Airlines' parent United Continental Holdings Inc., dragged down by merger-related costs, posted a big fourth-quarter loss Thursday.

The Chicago-based carrier reported a net loss of $620 million or $1.87 per diluted share in the fourth quarter, compared with a loss of $138 million in the year-ago quarter.

Fourth-quarter revenues fell slightly to $8.7 billion from $8.93 billion last year.

The latest quarter was burdened by $430 million in special charges tied to integration issues that have been plaguing United since its 2010 merger with Continental Airlines.

Excluding these charges the company’s loss would have been 58 cents a share, just beating analysts’ estimated loss of 61 cents.

Because fuel is such a key cost for airlines, United managed to outperform Wall Street expectations in part by keeping its often-volatile fuel costs under control. United paid 0.3 percent less for fuel in the fourth quarter.

United’s integration troubles continued this quarter, making up more than 90 percent of the fourth quarter’s special charges. The merger-related costs included repainting aircraft, training employees and paying for relocation and severance associated with eliminated jobs.

One-time costs attributable to Super Storm Sandy also set the company back $140 million in revenue, and took an $85 million toll on profit, the company said.

United executives said the company, which failed to meet its profit goals for full-year 2012, is now poised for growth.

“We have addressed the integration issues that drove our underperformance,” Jim Compton, vice president and chief revenue officer, said in a statement. “We are now positioned to capitalize on market opportunities across our network, and to earn back our share of revenue, based on solid operations and great customer service.”

Analyst Jamie Baker of J.P. Morgan Chase & Co. agrees the airline industry is in recovery.

“We believe the industry will continue to take the steps necessary to ensure profitability and continued balance sheet repair,” he said in a report.

Nonetheless, he said, the airline industry remains highly subject to market swings, and fluctuations in the demand for air travel could impact United significantly.

“Should the U.S. economy strengthen or even weaken more than expected, earnings could be positively or negatively affected accordingly,” Baker said.

United’s fourth-quarter traffic was down 2.7 percent from a year ago. Passenger revenue also decreased 3.6 percent since last year. Experts say customers were turned off by merger-related technology glitches and higher ticket prices.

United reported a full-year net loss of $723 million or $2.18 per share in 2012, almost cancelling out the company’s 2011 profit of $840 million.

The company’s stock went up 54 cents, or 2.16 percent, Thursday to close at $25.54.