Falling oil prices are great news for the airline industry. For United Airlines, though, things are little more complicated.
The airline just reported a fourth-quarter drop in revenue and earnings that fell short of analysts projections.
One of the biggest reasons for this is the impact of falling oil on Houston’s economy. Houston’s George Bush Intercontinental Airport is one of United’s largest hubs.
Although cheap fuel has helped United become more profitable — United saved $4.2 billion in fuel costs last year — the airline is uniquely exposed to the recent financial struggles of the energy industry.
In the fourth-quarter, revenue fell 3% to $9 billion and earnings came in at $934 million — below analysts projections of $959 million.
The airline also blamed the strong dollar and pricing competition for the shortfall.
United’s Houston operation has thrived in recent years as business from energy executives surged. But with the price of oil tumbling and mass layoffs underway, business from the energy sector has fallen significantly for the airline.
Even worse, the airline said during the call that it is seeing a downturn in bookings in and out of Houston from non-energy sector customers which is an indication of the expanding impact of weakness in the industry on the whole city.
Investors are taking this in stride. United’s shares rose Thursday, along with the broad market, after having dropped for most of the year so far.
It’s partly because this continuation of a trend that United has flagged earlier. According to the airline, revenue from United’s energy sector corporate business fell 35% last summer. United expects this trend to continue into the first quarter of 2016.
There was some unexpected good news too. United’s CEO Oscar Munoz, who had a heart transplant two weeks ago, turned up on the company’s earnings call.
Munoz has been on medical leave since suffering a heart attack in October, but he’s expected to return to the company as CEO at the end of the first quarter of 2016.
“I feel great! I’m planning to increase my involvement,” Munoz said on the call. “I will certainly be back full time by the end of the first quarter if not sooner.”
With Munoz on medical leave, acting chief executive Brett Hart took time to thank the company’s employees for their hard work and vowed to continue with Munoz’s plan to improve the company’s profitability and service.
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