United Reports Record On-Time Percentage, Jump in Fuel Costs, Huge Drop in Taxes
United Airlines reported its second quarter results late Tuesday, with profit dropping to $684 million, or 17% from the same period of last year. Yet shares were up 9% at midday on Wall Street on the earnings news, which was better than the expectations of analysts, but there are some interesting details in its earnings release:
Record On-Time Percentage
Without listing its on-time percentage anywhere in the 5,234-word report, United boasted:
- Ranked first among largest competitors in on-time departures in the quarter.
- Completed the best second-quarter on-time departure performance in United's history.
The most recent Bureau of Transportation Statistics release includes only on-time data through April 2018. In April, United reported a 83.9% on-time percentage — which is 5th place behind Hawaiian (87.7%), Delta (86.4%), regional airline Mesa (85.1%) and American Airlines (83.9%). So, it'll be interesting to see if United's claim to be the best holds up when the official May and June BTS statistics are released.
Yuuuge Tax Savings
In the depths of the financial statements, United disclosed that its effective tax rate fell from 35.5% in the first half of 2017 to 20.2% in the first half of 2018. That 43% reduction in its tax rate is credited to "the reduced federal corporate income tax rate as a result of the enactment of the Tax Cuts and Jobs Act (the 'Tax Act') in December 2017."
United's preliminary income tax expense for the first half of 2018 is $210 million. Applying the 35.5% tax rate to the pretax income of $1.041 billion would be a tax expense of $370 million. That means, assuming the same tax rate as the first half of 2017, United has saved $160 million due to the new tax law so far in 2018.
Note that United didn't follow Southwest and American Airlines in giving bonuses to its workers after the new tax law was enacted. However, it did try to sneakily slash employee bonuses by around $36 million before ultimately retreating on that effort.
Soaring Fuel Costs
You're not the only one feeling the pinch at the pump. Despite United's record on-time performance and drastic drop in taxes, its net income dropped nearly 17% year-over-year. And that's mostly because of soaring fuel costs. United's fuel costs jumped 43% in the same period, increasing costs by a whopping $721 million for the three-month period.
United's cost for airline fuel jumped from $1.62 per gallon on average from Q2 2017 up to $2.24 per gallon in Q2 2018 as it pumped 885 million gallons of jet fuel. The airline did get ever-so-slightly more efficient, increasing capacity by 4.3% while increasing fuel consumption by only 2.1%.