January 22, 2015 / 1:07 PM / 3 years ago

United Airlines bullish on first quarter from lower fuel costs

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

(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.

The airline also reported that its revenue was $9.3 billion last quarter, a 0.2 percent decrease year-over-year. It said it returned about $320 million to shareholders in 2014.

Company shares rose 3.16 percent to trade at $71.40 pre-market.

Reporting by Jeffrey Dastin in New York; Editing by Jeffrey Benkoe and Chizu Nomiyama

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