- REUTERS/Mike Blake
United Airlines’ third quarter earnings fell short of analysts projections. Revenue fell 2.4% to $10.3 billion and earnings came in at $1.7 billion – which was an increase from last year. On the company’s earnings call, the topic of the plunge in oil prices came up – but not for the reason you might expect. Tumbling oil is actually hurting United’s business. In the quarter, revenue from United’s energy sector corporate business fell 35%, executives said on the call with analysts and the media.
This won’t be getting any better – United projected a 40% fall in business at the end of the year. The airline doesn’t break out how much of its overall revenue comes from the energy industry, but there is a simple reason for the importance of the sector: Among legacy airlines, United has the largest presence in Houston.
Over the past year, crude oil prices have been cut in half, resulting in hundreds of thousands of layoffs in the energy sector particularly in the Houston area. Of course the drop in fuel prices isn’t all bad news for the airline. Third-quarter fuel expenses were more than 38% lower than the same period in 2014. Cheap fuel has helped the airline cut overall expenses by 10% in the last quarter.
In addition to weakness in the energy section, company executives also cited poor exchange rates and a drop in income front surcharges as other factors that contributed to the airline’s fall in revenue. Investors are taking this in stride. United’s shares rose Thursday after the results. But that gain also comes after the shares were hammered by uncertainty over the company’s leadership.
The earnings call came just a week after newly-appointed CEO Oscar Munoz was admitted to a hospital after suffering a heart attack. With Munoz on medical leave, acting chief executive Brett Hard took time to thank the company’s employees for their hard work and vowed to continue with Munoz’s plan to improve margins and service.
- United Airlines