Why United Airlines Blames Cheap Oil Prices for Q4 Revenue Drop
With cheaper oil prices, airline companies are making more money even while charging lower average fares. But for United Airlines, oil prices collapse is hurting demand for travel, particularly in one of its largest hubs, Houston's George Bush Intercontinental Airport.
United Airlines has shown improvement in some areas like on-time performance. However, the company's revenue is still shrinking at both the main airline and the United Express division. And according to Business Insider, the company has recently reported a fourth-quarter drop in revenue and earnings that fell short of Wall Street expectations.
Aside from the cheaper oil prices, the Chicago-based company also blamed the strong dollar and pricing competition for the shortfall of its fourth-quarter earnings. And while cheap jet fuel prices has helped United become more profitable, the second-largest U.S. airline company by capacity is exclusively exposed to the recent financial crisis of the energy industry.
Based on the firm's fourth quarter report, United's revenue declined 3 percent to $9 billion and earnings came in at $934 million, which didn't meet analysts' projections of $959 million.
Due to low fuel prices and mass layoffs, United also warned that business from the energy sector has fallen significantly. The firm also added that a downturn in bookings in and out of Houston from non-energy sector customers indicated the increasing impact of the weakening industry on the whole city.
Meanwhile, United also announced that CEO Oscar Munoz, who suffered a heart attack in October, will return early from medical leave, Reuters reported. Munoz even took analysts by surprise when he turned up during the company's earnings call.
"I feel great! I'm planning to increase my involvement," Munoz said during the conference call on Thursday. "I will certainly be back full-time by the end of the first quarter, if not sooner."
"It's a competitive industry, (but) I'm a competitive guy," he added, dismissing investor concerns that United's margin will continue to lag its peers.
Joining his fellow executives in Chicago for the conference call, Munoz also said he will return full-time by the end of March or sooner, instead of the previous plans of his comeback in April or May.
"Hearing Oscar on the call and having him say he's coming back soon is definitely a relief for investors," Sterne Agee CRT analyst Adam Hackel said.
With Munoz still on medical leave, interim CEO Brett Hart expressed his gratitude to United's employees for their hard work while promising to continue with Munoz's plan to improve the company's operational performance, The Salt Lake Tribune noted.
United has also revealed its plans to launch cheaper fares in the second part of 2016 to compete since cheap fuel has bolstered top U.S. carriers to cut some fares in line with budget airlines.
Subscribe to Latin Post!
Sign up for our free newsletter for the Latest coverage!
* This is a contributed article and this content does not necessarily represent the views of latinpost.com