United Airlines sees improving corporate travel, if not higher fares; a profit for AirTran

UAL says business travelers return slowly

MINNEAPOLIS — Business travelers are getting back on the plane, but they’re not paying as much as they used to.

United Airlines on Wednesday said it sees a definite improvement in demand for business and premium travel — the high-priced or last-minute tickets that airlines crave. In recent days the other big carriers have said the same thing.

Despite the improvement in business demand, though, they still lost money in the fourth quarter. United parent UAL Corp. reported a fourth-quarter loss of $240 million, which was much smaller than its year-ago loss, and much smaller than what analysts expected.

Industrywide, the amount each passenger pays to fly one mile fell 1.9 percent in December, according to the Air Transport Association. That was a smaller drop than previous months. All the big airlines tried a fare increase earlier this month, generally $16 round-trip. It fell apart. And while that says more about competition for coach travelers than about the big spenders in the front of the plane, the story appears to be the same.

“Our premium cabin fares aren’t anywhere near where they were in the peak, and in order to optimize the business, we’re going to have to get them there,” United President John Tague said on a conference call with analysts on Wednesday.

The amount each United passenger paid to fly one mile fell 8.4 percent in the fourth quarter, from a year earlier.

Tague said it’s too early in the recovery to expect fares to rise much, but United will keep trying.

“The rate of success over the last three to four months has been improving over prior periods,” he said. “We will continue to do everything within our power to optimize the pricing opportunity that we see ahead.”

An improvement in business travel is one of the key things analysts have been watching for as a sign that United’s prospects are getting brighter. The layout of its routes means that United suffered more than other airlines when business travel dropped — and it should stand to gain as business travel returns.

Business travel is unlikely to snap back to pre-recession levels, but it is getting better, said Dale Eastlund, a senior director at CWT Solutions Group, the consulting arm of corporate travel manager Carlson Wagonlit Travel.

“Because so many companies cut back last year on travel, going into this year there’s a significant amount of pent-up demand for businesses to get out there and meet with their customers, to try to drive sales,” he said.

United’s loss, not counting special items, was $1.05 per share. Analysts surveyed by Thomson Reuters expected it to lose $1.47 per share. Revenue fell 7.8 percent to $4.19 billion.

J.P. Morgan analyst Jamie Baker called the surprisingly small loss “a legitimate beat” of expectations.

“Demand was the key, with revenue trends nicely topping” the guidance United gave in December, he wrote in a note to investors.

Fourth-quarter fuel expenses fell $459 million, or 28 percent, from a year ago, as United cut capacity and the price per gallon dropped. In case fuel prices rise again, United has hedged 70 percent of its first quarter fuel at the equivalent of $75 per barrel of oil. For the full year, 40 percent of its fuel is capped at $77 per barrel.

The company ended the quarter with $3.04 billion in cash — a billion more than the same time last year. It raised money aggressively in 2009, mortgaging airplanes and parts and offering stock. It has cut more than $700 million from its debt and lease payments over the next two years. But there isn’t much more to mortgage. Once the most recent transactions wrap up, UAL will have about $200 million in assets that aren’t pledged.

For one explanation of why it’s tough for big carriers like United to make money, look to AirTran Holdings Inc. The parent of AirTran Airways reported a $17.1 million profit for the quarter, or 11 cents per share, after losing $121.6 million, or $1.03 per share, a year earlier. Like UAL, AirTran’s results were above analysts’ expectations.

Revenue rose 1.5 percent to $598.4 million from $589.4 million.

AirTran’s average fare was $90.75 in the fourth quarter, compared to $96.14 a year earlier.

The company has said it expects to increase its flying 3 percent to 4 percent this year, and 2 percent to 3 percent in 2011. CEO Robert Fornaro said AirTran will grow slowly because the economic outlook is still uncertain.

“I think there are going to be some opportunities for us, but I think the days of double-digit growth or more for carriers of our size, you’re just not going to see that happen,” he said.

Shares of Chicago-based UAL rose 4 cents to close at $12.83 on Wednesday. Shares of Orlando, Fla.-based AirTran shares rose 8 cents to close at $5.31.

AP Airlines Writer Harry R. Weber in Atlanta contributed to this report.