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United Continental reports smaller profits

Travelers wait for security check-O'Hare Airport Tuesday August 28 2012 Chicago. | John J. Kim~Sun-Times

Travelers wait for the security check-in at O'Hare Airport Tuesday, August 28, 2012, in Chicago. | John J. Kim~Sun-Times

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Updated: November 27, 2012 10:47AM

Frustrated travelers ditched United for other carriers after glitches from the Chicago airline’s merger with Continental led to delays and cancellations this summer, executives said while reporting third-quarter earnings Thursday.

The dollar amount of loss caused by operational difficulties wasn’t revealed, but United Continental Holdings CEO Jeff Smisek called it a “significant number” during a call with analysts. “It was a negative number for us in the third quarter, clearly.”

In August, United Airlines’ reservation system and website suffered a major computer glitch, grounding planes for more than hours, causing long lines and delayed flights and angering fliers.

During the July-August-September period, per-passenger revenue fell 2.6 percent, and was down in every part of the world except for the Pacific. Traffic fell 1.5 percent. Yield, which measures fares paid, slipped 1.2 percent.

Particularly damaging was the defection of corporate travelers, who booked elsewhere and hurt revenue.

Revenue for United Continental Holdings Inc. fell 2.6 percent to $9.91 billion, below analyst expectations.

A $454 million charge to cover future lump-sum payments to pilots anticipated under a preliminary deal reached in August wiped out much of United Continental Holdings Inc.’s profit. United also recorded $60 million in integration expenses for merging the two airlines.

Net income dropped to $6 million, or 2 cents per share, from $653 million, or $1.69 per share, a year earlier.

Smisek admitted customers chose other airlines this summer as United’s operation performance slumped.

“…We recognize that some of our customers chose to fly other airlines during the summer when our operational performance degraded, just like when your preferred road to work undergoes construction, you might choose to take a detour unti the road gets repaired.

“Well the road is repaired, with our operations back on track, our unmatched global network and our industry leading product offerings, we hope to earn back those customers who took a detour and we expect to attract new customers as well,” Smisek said.

David Fintzen, analyst with Barclays Capital, said United’s performance isn’t too different than when Delta Air merged with Northwest Airlines in 2010.

“We’re not out of the ballpark of what we’ve seen in the past,” Fintzen said. “The on time performance degredation, if you just look at the summer of 2010, it was a really rough period of operations for Delta…Delta has a very similar erosion in their on time performance. United is frankly not much worse than what we saw at this point in the merger [with Delta].”

Fintzen called Delta’s merger “an obvious success.”

“I don’t see any reason that United won’t get to where Delta is today. It just takes time. It’s going to take well into 2013.”

Technical work for the merger isn’t quite over. Smisek said there’s still more work to do to combine maintenance systems: “It is a monumental task but one that can be staged on a fleet by fleet basis over a considerable amount of time. That’s a multi-year project.”

He also called this quarter “the toughest quarter of our integration.”

Contributing: AP

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