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United, US Air Earnings Better Than Expected, But Losses Continue (UAUA, LCC, CAL, LUV)


UAL Corp. (UAUA), parent of United Airlines, and US Airways Group (LCC) both announced losses that were not as bad as last quarter and not as bad as expected. Continental Airlines Inc. (CAL) reported a worse-than-expected loss last week and Southwest Airlines (LUV) posted a one penny gain.

United posted an operating profit in the first quarter for the first time since 2000, $69 million compared with an operating loss a year ago of $282 million. US Air showed an operating loss of $10 million, smaller than last year’s loss of $25 million. Considering that US Air’s fuel costs rose by $47 million, that is not too bad.

Both United and US Air saw rising operating revenue per available seat mile. United’s revenue grew by nearly 19% and US Air’s grew by 8%. US Air’s average cost for a gallon of jet fuel, including taxes but excluding hedges, rose 47.6% year-over-year, and United’s fuel costs rose 37.9% in the same time frame. The first quarter of 2009 was the period when fuel costs were at their lowest point.

Both companies are looking for improved performance in the second quarter. United expects consolidated average seat miles to rise 3.8%-4.8% in the second quarter, compared with the year-ago period. The company also expects annual improvement of 2%-3%. US Air did not put a number on it, but the chairman/CEO did say that the company expects “a profitable second quarter and expect our revenue momentum and cost discipline to continue.”

United and US Air discussed a possible merger, but the talks fell apart over a change of control provision in US Air’s contract with its pilots that required the deal to be structured so that US Air was the surviving company. Now United is in talks with Continental, but The Wall Street Journal reports that these talks are slowed down by differences over the pricing details in a possible stock-swap merger.

US Air is neither a large global carrier, nor a low-priced domestic carrier, either of which would make it a more appealing partner for United. Continental, which has turned down a deal with United before, is a better fit and would give the combined company the global lead in traffic.

United shares are up about 1% so far today, and US Air is up more than 5%. The gains are probably due as much to the falling price of crude, the strengthening of the dollar and the rise in consumer confidence. The airlines need to live up to their forecasts and show some positive results next quarter. That would really be a lift.

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