United Airlines (UAL) (United Continental Holdings, Inc.) (Chicago) today reported first-quarter 2015 net income of $582 million, or $1.52 per diluted share, excluding $74 million of special items. Including special items, UAL reported first-quarter net income of $508 million, or $1.32 per diluted share. These results are a record first-quarter profit for the company.

UAL earned a 17.1 percent return on invested capital for the 12 months ended March 31, 2015.
UAL’s consolidated passenger revenue per available seat mile (PRASM) increased 0.4 percent for first-quarter 2015 compared to first-quarter 2014.

First-quarter 2015 consolidated unit costs (CASM), excluding special charges, third-party business expenses, fuel and profit sharing, decreased 1.5 percent year-over-year on a consolidated capacity increase of 0.1 percent. First-quarter 2015 CASM, including those items, decreased 13.1 percent year-over-year.

In the quarter, UAL returned approximately $200 million to shareholders as part of its previously announced $1 billion share buyback program.

In the quarter, UAL prepaid approximately $120 million of debt and announced its intention, in the second quarter, to prepay $601 million of its 6 percent notes due 2026 and 2028.

“This quarter we reported a profit of nearly $600 million, excluding special items, a $1 billion improvement compared to the first quarter of 2014, and I’d like to thank the United team for all their great work,” said Jeff Smisek, UAL’s chairman, president and chief executive officer. “We continued to improve our operational reliability and deliver products that enhance our customers’ experience, including new aircraft, improved food, new inflight entertainment options and modern facilities. We are making significant progress on our long-term plan to reduce costs, improve our margins and grow our earnings, and expect our second quarter pre-tax margin to be between 12 and 14 percent, excluding special items.”

First-Quarter Revenue and Capacity

For the first quarter of 2015, total revenue was $8.6 billion, a decrease of 1.0 percent year-over-year. First-quarter consolidated passenger revenue increased 0.5 percent to $7.4 billion, compared to the same period in 2014. Ancillary revenue per passenger in the first quarter increased 8.6 percent year-over-year to more than $23 per passenger. First-quarter cargo revenue grew 15.8 percent year-over-year to $242 million. Other revenue in the first quarter decreased 14.2 percent year-over-year, mostly due to the reduction in sales of fuel to a third party. The corresponding expense decline from this reduction appears in third-party business expense.

Consolidated revenue passenger miles increased 0.1 percent and consolidated available seat miles increased 0.1 percent year-over-year for the first quarter, resulting in a first-quarter consolidated load factor of 81.1 percent.

First-quarter 2015 consolidated PRASM increased 0.4 percent and consolidated yield increased 0.4 percent compared to the first quarter of 2014.

“This quarter our PRASM performance reflected good progress on our revenue initiatives,” said Jim Compton, UAL’s vice chairman and chief revenue officer. “We will continue to match capacity with demand while making the appropriate network, fleet and product decisions to enhance revenue and margin performance, while improving our customers’ experience.”

First-Quarter Costs

First-quarter consolidated CASM, excluding special charges, third-party business expense, fuel and profit sharing, decreased 1.5 percent compared to the first quarter of 2014. The improved cost performance was driven by the better-than-expected performance from the company’s Project Quality efficiency program and strong U.S. dollar. First-quarter consolidated CASM including those items decreased 13.1 percent.

First-quarter total operating expenses, excluding special charges, decreased $1.19 billion, or 13.2 percent, year-over-year. Including special charges, total operating expenses decreased $1.18 billion, or 13.0 percent, in the first quarter versus the same period in 2014.

First-Quarter Liquidity and Cash Flow

In the first quarter, UAL generated over $1 billion in free cash flow, and ended the quarter with $7.0 billion in unrestricted liquidity, including $1.35 billion of undrawn commitments under its revolving credit facility. During the first quarter, the company had gross capital expenditures of $794 million, excluding fully reimbursable projects. The company contributed approximately $180 million to its pension plans and made debt and capital lease principal payments of $320 million in the first quarter, including approximately $120 million of prepayments. UAL also announced its intention to prepay the remaining $303 million of 6 percent notes due 2026 on April 1, 2015 and to prepay $298 million of 6 percent notes due 2028 on May 1, 2015.

As part of UAL’s $1 billion share buyback program, the company spent approximately $200 million in share repurchases in the first quarter. Through the first quarter, UAL has returned a total of approximately $520 million to shareholders under the program.

For the 12 months ended March 31, 2015, the company’s return on invested capital was 17.1 percent.

For more information on UAL’s second-quarter 2015 guidance, please visit ir.united.com for the company’s investor update.

Fleet Updates

Today, UAL announced refinements to its fleet plan, which will allow the company to achieve longer-term network needs without increasing its outlook for capacity or gross capital expenditures over the next several years. These adjustments will accelerate the company’s network initiatives as it transitions flying into the mainline operation from the regional operation, increases average gauge and reduces reliance on 50-seat aircraft. As part of this effort, the company will:

Complete the removal of more than 130 50-seat aircraft from its schedule by the end of 2015. UAL will remove additional 50-seat aircraft in 2016 and beyond as aircraft come off lease.

Above Copyright Photo: Brian McDonough/AirlinersGallery.com. United is removing rapidly its smaller regional jets. Operated by ExpressJet Airlines, Embraer ERJ 145XR (EMB-145XR) N12166 (msn 145831) approaches the runway at Baltimore/Washington (BWI).

Exchange 10 787 orders with Boeing for 10 777-300 ERs for delivery beginning in 2016. The new 777-300 ER aircraft will provide attractive upgauge and range opportunities to the company at competitive economics.

Extend the life of 11 additional 767-300 ER aircraft. The company now plans to extend the life of all 21 767-300 ER through investments in winglets, reliability improvements and interior modifications, which will improve financial performance and make the aircraft more customer pleasing.

Above Copyright Photo: SPA/AirlinersGallery.com. United has made the decision to extend the operating life of all 21 Boeing 767-300 ER aircraft. United is also inserting some international Boeing 777-200 and 757-200 aircraft back into the domestic market.

Reconfigure and transition 10 777-200 aircraft currently used in international markets into the domestic network, and position a number of its trans-Atlantic 757-200 fleet into the domestic and Latin markets, with the extension of the 767-300 ER aircraft.

Acquire additional used narrowbody aircraft. The company is in final negotiations regarding the lease of 10 to 20 used narrowbody aircraft for delivery over the next few years. In addition, the company plans to continue to seek other opportunities to acquire used aircraft to meet its needs as market conditions allow.

These changes will not impact the company’s current 2015 capacity guidance, and are consistent with the company’s focus on capacity discipline, and will not alter the company’s current gross annual capital expenditure guidance of $2.7 billion to $2.9 billion over the next three to four years.

“These changes are part of our strategy to improve operational reliability, grow capacity with demand, and enable us to achieve our long-term goal to improve margins and return on invested capital,” said John Rainey, UAL’s executive vice president and chief financial officer. “Customers tell us they prefer larger aircraft, and these fleet modifications will provide more opportunity for our customers to travel on the type of aircraft they prefer.”

Top Copyright Photo: SPA/AirlinersGallery.com. United will exchange 10 Boeing 787 orders with Boeing for 10 777-300 ERs for delivery beginning in 2016. According to the carrier, “the new 777-300 ER aircraft will provide attractive upgauge and range opportunities to the company at competitive economics.” Boeing 787-8 Dreamliner N26910 (msn 34826) climbs away from London (Heathrow).

United Airlines aircraft slide show (current livery only):