United sees continuing marginal improvement in Q3

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United Airlines is beginning to reap the benefits of its revenue generating and cost reduction programmes, with improved guidance for the third quarter.

The Chicago-based carrier anticipates a 2% to 4% increase in passenger revenue per available seat mile (PRASM) during the period. This allows for the possibility of slightly better performance than the 3.7% growth it recorded in the second quarter.

Jim Compton, chief revenue officer of United, says that the recalibration of its revenue management system that began in 2013 is expected to contribute one percentage point to PRASM growth in the third quarter, during an earnings call today.

The recalibration contributed 0.75 percentage points to the PRASM increase in the second quarter, he adds.

United continues to focus on network and schedule optimisation, regional and other initiatives to improve revenues, says Compton.

“We’d describe United’s revenue progress as thus far unremarkable and in line with its margin-recovery plan,” says Jamie Baker, an analyst at JP Morgan, in a report today.

Costs per available seat mile (CASM) excluding fuel, special items and profit sharing is expected to rise 1% to 2% in the third quarter, which is in-line with United’s goal of keeping cost growth below 2%.

This comes after the metric fell 0.2% in the second quarter due to stronger than expected returns from the airline’s $2 billion cost savings programme, the renegotiation of some maintenance contracts and the shift of some expenses to the third quarter, says United chief financial officer John Rainey.

United expects to pay on average $3.02 to $3.07 per gallon for fuel in the third quarter.

Capacity will be up 0.2% to 1.2% in the third quarter, as the carrier continues to closely manage capacity. The biggest mainline growth will be in Latin America with an up to 8.1% increase while domestic mainline will decrease up to 1.9%.

United plans to take delivery of four Boeing 737-900ERs, one Boeing 787-8 and one -9, and add 12 Embraer 175s to its regional fleet in the third quarter.

Gross capital expenditures will be $630 million to $680 million, it says.

United has adjusted full year capacity guidance down by one percentage point to flat to up 2% increase, says Rainey.