Computer glitches worsen United Airlines 1Q loss
Sorry for the inconvenience. United Airlines is experiencing technical difficulties.
That was the story in the first quarter for the world's biggest airline. It lost $448 million as computer difficulties delayed flights, hurt bookings and frustrated passengers. A growing fuel bill didn't help. And travel is usually weak in the first three months of the year.
To passengers, CEO Jeff Smisek apologized for poor customer service. To investors, he said the hiccups are mostly over and the computer integration that caused them should lead to more profits in the future.
"We weren't able to deliver the level of customer service that we wanted and that our customers have come to expect," he said on Thursday.
There was a bit of good news. On an adjusted basis, United's loss of 87 cents per share was actually less than analysts had feared.
United and Continental merged in 2010, but only in the last few months did they combine frequent-flier accounts and retire Continental's name from tickets and airport signs.
Behind the scenes, United combined two important, massive computer systems -- one that helps it predict how many tickets it should sell, and another that tracks passenger information. The airline had practiced extensively for the switch, which Smisek called a "monumental task."
Some parts went well. But others didn't. One switchover on March 3 caused flight delays for several days. Customer frustration with upgrades and long waits to speak to United agents on the phone persisted for weeks.
To get ready for the switch, United overbooked fewer seats than usual so fewer passengers would need to find another flight if things didn't go well. That part worked -- but it meant turning away more last-minute travelers who generally pay more and who are often the cause of overbooked seats.
That resulted in lost revenue. One closely watched airline revenue measure rose 5.2 percent. But that little more than one-third of the growth reported by United's closest competitor, Delta Air Lines Inc.
Smisek said the changes are worth it. United can now schedule planes freely around its network, matching the right plane to the right route, and it can market them all under the United name. That will pay off in future quarters, he said.
But there are still remnants of the computer switchover for United to hash out:
-- Passengers can't buy some add-ons that United used to offer. They include Premier Line, which allowed travelers to pay to move to the front of boarding and security lines, or one-time access to its airport clubs. The airline said it's working to restore those options. Executives declined to say how much revenue that's costing. The problem: United's combined website has the software guts of Continental's old site, which didn't sell those add-ons.
-- Because of the website conversion, the combined airline has been selling its more-desirable "Economy Plus" coach seats at one price, instead of raising the price on the very best seats or as the travel date got closer, as the old United did. It's fixing that. United said it now has Economy Plus on about three-quarters of the fleet and will have it on all mainline planes by the end of this year.
-- Travelers have complained that United workers struggle with the passenger information system, which used to be Continental's. United said the system will get a new "front end" -- the part that workers use -- while keeping the underlying software.
United Continental Holdings Inc. said its first-quarter loss was $1.36 per share. Revenue rose 4.9 percent to $8.6 billion. In the year-earlier quarter, United lost $213 million, or 65 cents per share, on revenue of $8.2 billion.
Not counting integration costs of about $134 million, United would have lost $286 million, or 87 cents per share. Analysts surveyed by FactSet expected a loss of $1.12 per share.
United's fuel bill rose almost 21 percent, or $557 million, over the same period last year. Airlines have been raising fares to offset that fuel price increase.
United Continental shares fell 84 cents, or 3.7 percent, to close at $22.13.