United Airlines stock was up 9% in midday trading Wednesday
after the carrier reported second-quarter earnings that exceeded analyst
United said the results were partially driven by its
strategy to increase small-market connectivity through its mid-continent hubs
of Houston, Chicago and Denver.
"We saw where we were missing opportunities,"
acting CFO Gerry Laderman said during United's earnings call Wednesday. "We
now have a plan where we are capturing opportunities."
United reported net income of $684 million during the second
quarter. While that total is down 16.7% year over year, due primarily to a 43%
jump in fuel prices, the carrier's quarterly revenue of $10.78 billion beat
expectations by $60 million.
United's earnings per share during the second quarter was
$3.23, topping expectations by 17 cents. The company credited strong demand,
coupled with new product and network initiatives, for its decision to increase
full-year guidance from between $7 and $8.50 to between $7.25 and $8.75.
Wall Street's reaction to the report is in sharp contrast to
the sell-off that followed the carrier's announcement in January that it would
increase its pace of capacity expansion over the next three years, filling in
its route map for regional flying. The carrier is seeking to catch up with
legacy competitors American and United in terms of the number of connecting
itineraries it offers.
United's stock plunged 11% the day after that announcement
on fears of an industry price war that would drive down margins.
United has already consolidated its so-called "flight
banks" in Houston and Chicago as it seeks to improve regional
connectivity. Flight banking is an operational technique that airlines use at
their hub airports. Incoming flights arrive in a series of concentrated banks
rather than scattered more broadly throughout the day. Outgoing flights also
depart in banks. Concentrating schedules in that manner makes for generally
shorter connection times.
The rebanking efforts helped United post a 10%
year-over-year revenue increase in itineraries between small cities and medium
or large ones during the second quarter and a 20% revenue increase on
itineraries between small markets, United reported.
The carrier will restructure its Denver flight banks
beginning next February.
Looking forward, United has reduced its planned 2018
capacity expansion from between 4.5% and 5.5 % to between 4.5% and 5%.
The reduction, United president Scott Kirby explained
Wednesday, is a normal response to rising fuel prices and is not a harbinger of
any fundamental changes to United's growth plan.