United Blames Paris Attacks for Poor Fourth Quarter Showing
Airlines are expected to announce that they earned record profits in 2015. After years of falling stock prices, shareholders are looking forward to some good news for a change. At least one airline, however, is telling investors to temper their expectations.
United hints at disappointing Q4 numbers
United Airlines warned that the value for one key piece of financial data for the fourth quarter of 2015 would be a bit lower than expected. The carrier said that the figure for "passenger revenue per available seat mile" (PRASM), was going to be disappointing. Basically, this figure compares the number of tickets sold with overall seat capacity. It illustrates an airline's financial efficiency.
United did not mention a dollar amount, but did say that its fourth-quarter PRASM figure would fall by 5.75-6.25 percent compared to Q4 2014, meaning it would likely be worse than the vaguer four to six percent drop that the airline previously projected.
Even with this drop, United said it will still make a profit for the last three months of the year. The carrier expects to be see about 10 percent pre-tax profits when the October-December numbers are tallied.
Paris, oil prices blamed for slow quarter
These numbers alone do not mean that United is faltering. Profitable airlines can have low revenue-per-seat figures. Southwest and Delta have also hinted that their year-on-year PRASM figures for December would drop. United, however, has mentioned very specific reasons for its worse-than-expected figures.
UAL’s parent company, United Continental Holdings, has said that the November attacks in Paris are the reason for its less than impressive data. The airline also said that low oil prices have meant less travel for oil industry employees. This group had been a major source of income for United, which operates 80 percent of the flights out of Houston Intercontinental, a major hub for the U.S. oil industry.
Other factors also at play
Other factors, not mentioned by the airline, could also be at play. United had a lower customer satisfaction rating than all of its competitors in the most recent air travel survey by JD Power and Associates. It is also lagging behind when it comes to on-time performance. A new CEO, Oscar Munoz, was brought in to try and improve in these areas. However, he suffered a heart attack in October and recently underwent heart transplant surgery. Though he is said to be recovering, his return to the helm of United is uncertain.
Upon merging with Continental, United was the largest airline in the country. It was since overtaken by American (after its merger with US Airways). Recently, Delta, which has been improving its key customer satisfaction figures as of late, overtook United for second place on the largest-carrier list.
Paris and the slowing oil industry have certainly hurt air travel, but it seems like there are other, unmentioned issues that could be affecting United’s financial performance. When the latest balance sheets are made public, investors will have to decide if temporary problems like terrorism fears and slowing oil field activity are to blame, or if there is something deeper that the airline needs to address before it can right its proverbial ship.
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