UAL posts smaller-than-expected loss; stock jumps
CHICAGO (Reuters) - United Airlines parent UAL Corp posted a quarterly loss due to July's record-high energy prices and a drop in the value of its fuel hedges as oil later plummeted, but the results were not as bad as Wall Street expected, and the company's shares rose more than 10 percent.
The loss underscores the troubles UAL and its rivals had last quarter as they grappled with skyrocketing fuel bills that peaked alongside crude oil in July.
The carrier suffered an additional noncash loss of $519 million, however, as its hedges -- designed to blunt the impact of rising fuel -- lost book value as oil began a rapid descent.
"While oil prices are lower in recent weeks, they continue to be volatile," UAL Chief Executive Glenn Tilton said in an e-mail to employees.
"That said, the convergence of falling oil prices with our capacity flexibility, strong improvement on costs and competitive revenue put us in a position to make our margin and return United to profitability," Tilton said.
Minus the noncash loss, the carrier's results easily beat market expectations. UAL shares rose $1.30, or 10.3 percent, to $13.97 in morning Nasdaq trade.
The airline industry has been battered by soaring fuel costs, which peaked alongside crude oil as it notched a record high in July. Oil has fallen about 50 percent since it touched its high.
Nevertheless, airlines are rapidly downsizing to offset fuel bills. UAL, which intends to reduce its domestic capacity by 14 percent in the fourth quarter, is cutting 7,000 jobs from its workforce of 55,000.
Capacity cuts and falling fuel prices have blunted the impact of a weakening economy on airlines. Some experts have warned that travel demand could weaken further as travel budgets shrink.
UAL RESULTS
UAL said its third-quarter net loss amounted to $779 million, or $6.13 per share, compared with a year-earlier profit of $334 million, or $2.21 per share.
Excluding the hedging loss and other one-time items, the carrier said it lost $1.99 per share. Wall Street analysts had expected a loss of $2.48, according to Reuters Estimates.
Calyon Securities analyst Ray Neidl said it was difficult to forecast UAL's results for the quarter because capacity cuts began to impact the revenue the airline earned on each seat flown.
UAL said its hedge-related loss amounted to $519 million, but noted that it saw a cash gain of $17 million on contracts that settled during the third quarter.
Other airlines also have reported book losses on hedge portfolios. Last week, Southwest Airlines , well-known as the best-hedged U.S. airline, wrote down $247 million in mark-to-market losses on the value of its fuel hedge program.
"Airlines would love to take those types of charges in exchange for cheaper fuel," Neidl said.
UAL said its operating revenue rose 0.7 percent to $5.57 billion from a year earlier. Its fuel bill rose 64.8 percent.
The company ended the quarter with an unrestricted cash balance of $2.9 billion.
(Reporting by Kyle Peterson; Editing by Dave Zimmerman and Lisa Von Ahn)