United announces $1.2B quarterly profit

United Airlines (UAL) rode lower fuel costs that offset a drop in total revenue to report second-quarter profit of $1.2 billion, or $3.14 per diluted share, a record for the company for the period of April, May and June.

With that performance, United's board authorized another $3 billion share repurchase program, which the company expects to complete by the end of 2017. The carrier also prepaid $800 million in debt, contributed $620 million to its pension plans and bought back $250 million in stock.

"This quarter's record results reflect the progress we're making on our long-term plan, and I'd like to thank the United team for their great work," CEO Jeff Smisek said in a statement. "The $3 billion share repurchase program we announced today demonstrates the confidence we have in our future."

The record profit was the seventh consecutive quarter of good cost performance, according to John Rainey, chief financial officer.

The result came despite total revenue of $9.9 billion falling 4% from the same period a year earlier. Lower fuel costs led a reduction in total operating expenses to $954 million, or 10% less than the same period a year earlier.

J.P. Morgan analysts welcomed the airline quadrupling the size of its stock buyback, even as the strategy infuriated workers. Analysts Jamie Baker and Mark Streeter said investors would embrace the airline through the second half of the year.

United's planes were flying 83.9% full during the quarter, despite a 2.3% growth in seats with only a 0.7% growth in revenue passenger miles, a measure of how many travelers are paying to fly.

"United will continue to invest in our customers, assets and staff," with pretax earnings in the third quarter projected between 13.5% and 15.5%, excluding special items, Smisek  said.

For example, United invested $100 million to acquire a 5% stake in Azul Brazilian Airlines and invested $30 million in Fulcrum BioEnergy, an alternative-fuels company. Also during the quarter, United consolidated its East Coast transcontinental hub at New York area's Newark Liberty Airport, with plans to leave John F. Kennedy Airport in October.

"These decisions will enhance our network and provide our customers with more choice and convenience," said Jim Compton, chief revenue officer.

United earned 18.2% return on invested capital for the year that ended June 30.

The results totaled $1.3 billion, or $3.31 per diluted share, when counting $67 million in special items. The special items included severance and benefits, costs related to integrating with Continental and costs associated with permanently grounding Embraer ERJ 135 aircraft.

After the second quarter in row with lower unit revenue, United ratcheted down its projections for capacity growth to 1.5% for 2015, which is half what was initially planned, according to Compton.

Lower energy prices spurred less business travel, he said. International travel is weaker because of the strong U.S. dollar, so the airline reduced transatlantic capacity 0.5% from the same period a year earlier.

“We’re tweaking some things,” Compton said. “The great thing about our network and our fleet is flexibility.”

The latest earnings report comes during a troubled period for the airline.

The Association of Flight Attendants-CWA and the Air Line Pilots Association picketed July 16 outside United's headquarters in Chicago and at airports around the world for lack of contracts with flight attendants and mechanics. Flight attendants argued Thursday that the quarterly profits should be shared with workers rather than buying back stock.

"Announcing a $3 billion stock buyback plan is outrageous as current management fails to invest in flight attendants who are among the front-line working people who make the airline go," the union said in a statement. "It's our turn, and it's past time! If not now, when?"

Other problems included computer outages that disrupted flights for 30 minutes on June 2 and two hours on July 8. The second incident canceled 55 flights for United and its affiliates, and delayed 1,200.

For April and May, the two most recent months available, United ranked 10th among 13 airlines the Transportation Department tracks for on-time flights.

United had 79.4% of its flights arrive within 15 minutes of their schedule in April and 76.6% in May, according to the department. United announced its June on-time performance also fell nearly 4 percentage points to 66.4%.

Weather and maintenance caused flight disruptions in June. United hubs had thunderstorms 25 of 30 days, and there were an unspecified number more maintenance write-ups, according to Greg Hart, chief operations officer.

But Hart said the rate of maintenance cancellations has been cut in half. Overall, the airline has had 24,000 fewer cancelations during the first half of the year, he said.

“While our performance in June didn’t meet our expectations,” Hart said. “We are committed to doing what it takes to run a more reliable airline.”