United shifts away from Houston as oil plummets

OREANDA-NEWS. February 01, 2016. United Airlines' fuel costs fell steeply in the fourth quarter but the slumping oil industry in Houston has the airline moving business away from the city.

United's fuel costs were down by 36pc to \\$1.68bn in the fourth quarter compared to a year earlier and were down 17pc from the third quarter of 2015. The company also reported record fourth quarter profits of \\$934mn.

But lower global oil prices have cut into travel by the airline's more profitable corporate energy customers, in particular travel to and from the energy business hub of Houston, Texas. In response the company is changing plans from increasing Houston hub traffic by about 2pc in 2016, and will now keep it flat with 2015 levels.

"Consequently, we are shifting capacity away from Houston and into other growing markets, like Denver and San Francisco," said chief revenue officer Jim Compton.

The company paid an average consolidated fuel price of \\$1.52/USG excluding hedge losses, versus the \\$2.58/USG booked a year earlier. When accounting for hedge losses the average price reached \\$1.82/USG. This was also down from the \\$1.72/USG without hedges and \\$1.89/USG with hedges seen during the third quarter of 2015. Total 2015 fuel costs excluding hedges averaged \\$1.78/USG, down more than 40pc from the year prior.

United had hedged roughly 23pc of its fuel costs for the fourth quarter and booked a loss of \\$175mn, down from the \\$275mn the company forecasted during its third quarter earnings call. For 2016 the airline is 17pc hedged for a loss of approximately \\$225mn and is positioned to participate in 98pc of any future declines in oil prices. United has not added any new hedges since July 2015.

Fuel consumption was little changed year-over-year at 951mn USG, yet was down 8.5pc from the third quarter of 2015 as a slowing global economy and terrorist attacks crimped travel demand. United consumed a total of 3.87bn USG during 2015, down just 0.5pc from the year prior.

Fourth quarter revenue passenger miles (RPMs), a measure of capacity based on the distance travel by paying customers, climbed 3.1pc to 50.72bn miles from the year prior, while total 2015 RPMs came in at 208.6bn miles, up 1.5pc year-over-year. The company reported third quarter RPMs of 50.65bn miles.

Available seat miles (ASMs), measuring total capacity of available seats on an aircraft, rose 1.8pc year-over-year to 61.3bn miles, while ASMs totaled just over 250bn miles for 2015, up 1.5pc from 2014. Passenger load factor, the ratio of RPMs to ASMS, rose 1pt to 82.7pc, while the airline achieved a 2015 load factor of 83.4pc, down 0.2pt on the year.

Despite improving capacity metrics, the company's yields declined for a second quarter. Passenger revenue per available seat mile tumbled 6pc to 12.61?, while average yield per revenue passenger mile plummeted 7.2pc to 15.24?.

The company plans to invest approximately \\$1.7bn to add 14 737's, five 787-9s, one 777-300ER, nine A319s and 30 Embraer E175s to its fleet this year.

United reported record fourth quarter profits of \\$934mn, the seventh straight quarter of record earnings, while 2015 pretax profits of \\$4.5bn were a company record as well. The airline achieved the best on-time performance and completion factor since the merger with Continental took place. The company is in the process of transitioning 70pc of its operations to out-and-back flying from the 35pc reported for 2015 in an effort to reduce complexity and limit the impact weather has on its hub operations.