Hurricane to take hit on United earnings, but airline expected to weather it
BY SANDRA GUY Business Reporter email@example.com October 31, 2012 7:02PM
Updated: December 2, 2012 2:17PM
United Airlines stands to take a fourth-quarter earnings hit from Hurricane Sandy ranging from $25 million to $40 million — a blow but not a catastrophic one, analysts said Wednesday.
“You can’t shut down one of your largest connecting hubs — Newark (Liberty International Airport in New Jersey) — for two-and-a-half to three days and not have an effect,” said Michael Boyd, chairman of Boyd Group International, an aviation industry consulting firm in Evergreen, Colo.
United Airlines canceled 5,200 flights nationwide from Sunday through Wednesday, said company spokesman Charles Hobart. Analysts say airlines board 153 people per airplane based on 84 percent capacity loads.
Boyd estimated a $25 million to $30 million ding in United’s fourth-quarter earnings based on the airline’s third-quarter earnings of $520 million. That would be an 8 percent to 10 percent hit on what the airline would have otherwise made in the fourth quarter, Boyd said.
The Chicago-based airline reported third-quarter earnings on Oct. 25. CEO Jeff Smisek called the results the toughest yet in United’s merger with Continental, partly because the company recorded $60 million in merger expenses and a one-time $454 million expense to pay pilots if they ratify a tentative new contract. The quarter also reflected a drop in business travelers following computer glitches that arose when the two airlines merged their reservation systems.
Despite those problems, Boyd said United “is making money on running an airline” and did “an outstanding job” mitigating the hurricane’s effects.
United notified passengers up to three days ahead that their flights were canceled and removed its fleet from the area, he said.
Further, Newark’s airport is in better shape than harder-hit LaGuardia Airport and John F. Kennedy International Airport, where American and Delta split their New York hubs, Boyd said.
Newark and Kennedy resumed operations Wednesday, while LaGuardia, which was underwater, is slated to reopen Thursday.
Morningstar analyst Basili Alukos said he foresees an estimated net revenue hit of $45 million in the fourth quarter, based on the loss of $180 million in revenue from canceling 30 percent of the airline’s flights.
“The airlines will pretty much have to swallow” the losses because the industry is so competitive and they will realize some savings on using less fuel and having fewer takeoffs and landings, he said.
A United Airlines spokesman had no comment on projected earnings Wednesday.
The airline operated limited flights in and out of Newark on Wednesday and returned to normal operations at Dulles (Va.) International Airport just outside of Washington, D.C., said United spokesman Hobart.
United mobilized more than 500 employee volunteers to fly to the hardest-hit airports to help customers and employees, Hobart said.
“We have included customers with tickets booked for Nov. 3 on our waiver for New York-area airports (Newark, LaGuardia and Kennedy),” he said. “Customers who decide not to fly are eligible for a full refund. They may also rebook with fees waived if they commence travel by Nov. 9. We will also waive the difference-in-fares if customers complete travel by Nov. 9.”