United joins the $1bn quarterly earning club


Just how profitable are the US carriers right now? United Airlines reported a record $1.3bn profit for 2Q 2015 ($1.2bn after special items), surpassing bellwether Delta‘s $1bn profit. And Southwest Airlines is also at the party, recording a $600mm profit for the quarter. That’s a lot of cash to play with, though the carriers all remain somewhat conservative in their plans. None announced major expansion or product improvements as part of their reports. Which is to say that the passengers are paying plenty but not necessarily getting much back in terms of product improvements.

United indicated that it would complete a previously announced $1bn stock buy-back program in Q4 2015 and initiate a further $3bn buy-back effort expected to complete over 2016/2017. Southwest announced a similar $500mm program to start imminently. Delta similarly has been buying back stock in massive volume; the carrier reports $925mm in buy-backs during the quarter. UPDATE: American Airlines reported $1.7bn in net income for the quarter and announced a $2bn stock buy-back program.

These efforts all increase shareholder value but do little to benefit the passengers or employees. Yes, there are profit sharing payouts which are great for employees. But that’s not the same as investing the billions in buy-back cash in those same employees. United still has labor groups which do not have an agreement to integrate post-merger and Delta pilots just rejected a contract which , among other things, changed the definitions of profit sharing for them to bonus on a smaller piece of the pie.

As for passengers, well, it seems the best they can hope for is more new planes. And new planes are generally great but there’s more to a comfortable ride than the age of the aircraft. Actually, a lot more. Things like personal space and in-flight product matter, too. Most of the new planes (and plenty of the old ones) are being retrofit to include more passengers in the same total space. That’s great for profits and cost control but rarely does it mean good news for the passengers on board. At the same time, the carriers are – generally speaking – improving the in-flight entertainment and connectivity options on board, so that’s a nice benefit, even if the goal is mostly distracting travelers from the pain rather than solving the problem.

Solid earnings are important for the airlines, and something they historically have not experienced. They’re all working on what to do with the cash they’re collecting and coming up with plans for saving, spending and playing. I suppose I just wish that more of the spending and playing money went into things which improved the travel experience rather than rewarding the bankers and executives (who take their bonus in stock and then spend the company money propping up the share value).

 

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .

7 Comments

  1. its nice to see UA finally surpassing DL in quarterly profits…as I find UA to be more appealing than DL overall. The media crush with DL has always surprised me a bit. And now, as more and more people see DL ruin any chance for loyalty award flying internationally, I am aware of more and more friends, clients, and colleagues who have switched to UA and AA–and been shocked to discover that UA wasn’t as bad as they’d expected based on all the media reports to the contrary.

    The U.S. legacy carriers are not as luxe as the Asian or Gulf carriers in their premium classes, but they are more comparable than most want to admit in Economy. Yes, the U.S. carriers still haven’t moved to create a premium economy cabin in international service, but it otherwise the flatbed seats and IFE in premium classes are reasonably comparable and sometimes superior to that of the “better” foreign carriers. I’ve had flatbed Business class seats on UA for nearly 5-6 years now, whereas I still get angle-flat seats on Lufthansa, Emirates, Qatar, and other supposedly better carriers. The fact is that a few amazing First Class seats on certain routes has clouded the judgment of the bloggers and media and caused people to overestimate the higher quality across the board for many foreign carriers (with Singapore, Cathay, and perhaps Japan being notable exceptions). Everyone loves to whine about how UA, AA, and DL aren’t getting the job done, even as UA, DL, and AA are making the most profits BY FAR of any international carriers. Whether people want to admit it or not, the U.S. carriers are doing it right as the businesses they are, even as there are more luxe and better service carriers outside the country. Those foreign carriers may be more like in some premium classes and on some but not all routes…but we can’t fly those routes when we’re flying domestic routes. And most of those “better” foreign carriers have no domestic market to speak of, including Singapore, Cathay, Emirates, Etihad, Qatar, and even Lufthansa. Only the U.S. carriers really have massive international routes along with massive domestic route networks.

    1. Yes, UA hit better numbers than DL this quarter, but a lot of that is associated with the fuel hedge positions; UA did MUCH better than DL there while DL did better on passenger revenue, PRASM and yield. Be careful when trying to draw conclusions from just one set of numbers.

  2. I love that these carriers are buying back stock at close to annual highs simply to reduce share count and drive quarterly EPS.
    Guess having Blackstone et al as major shareholders does indeed drive more corporate myopia.

  3. Just an FYI, net income or profit is not cash… you gotta scroll further down to get to the cash flow statement for that. I realize this isn’t a financial blog but figured some might misunderstand the post.

    1. The DL $1.6bn number is pre-tax. The UA number is not. In fact the very first line in that press release says, in part, “including adjusted net income of $1.0 billion” which is the number I’m comparing across.

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