United Airlines bullish on first quarter from lower fuel costs

Thu Jan 22, 2015 9:01am EST
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By Jeffrey Dastin

(Reuters) - United Continental Holdings Inc provided a bullish outlook for the coming year on Thursday in part because of lower fuel costs, sending shares up even though its fourth-quarter profit fell short of expectations.

The Chicago-based carrier forecast a pre-tax margin between 5.0 and 7.0 percent for the first quarter, a departure from previous years when winter storms and flight cancellations have eaten into their income.

"That would be starting off the year on a very, very strong note," said CRT Capital Group analyst Michael Derchin, adding that he could not recall when United made as much pre-tax profit in the first quarter.

The projections stemmed not only from seasonal capacity discipline but also from the plummeting cost of fuel, which typically amounts to a third or more of airlines' total operating expenses.

United projected a fuel cost between $1.96 and $2.01 per gallon for the first quarter, including settled hedges, which would represent hundreds of millions of dollars in savings compared to its fourth-quarter price of $2.83.

"They're going to start to see the full benefits of lower fuel," Derchin said.

United said Thursday that settling losing fuel hedges cost the airline $225 million in the fourth quarter. This, along with costs from a voluntary buyout for flight attendants and other special items, dragged down its fourth-quarter profit to $28 million.

Excluding these costs, the airline earned $461 million last quarter, or $1.20 per diluted share, which still fell short of analysts' average estimate of $1.22 per diluted share, according to Thomson Reuters I/B/E/S. The Wall Street estimates excluded certain special items.   Continued...

People are seen at the United Airlines terminal at Newark International Airport in New Jersey, July 22, 2014. REUTERS/Eduardo Munoz