United posts 1Q loss but says operations are improving; 787 grounding cost $11 million

United Airlines says it’s on the way to fixing the reliability problems that have driven away travellers. Now it needs to reliably make money.

The airline’s parent company reported a $417 million first-quarter loss on Thursday. CEO Jeff Smisek was disappointed with the financial result, but said the airline is making strides in customer service that will eventually help the bottom line.

United is giving customer service training to airport workers and flight attendants worldwide, including those who fly on regional airlines hired by United. New software is supposed to make it easier for gate agents and ticket counter workers to manage flights. United is spending more on maintenance and has changed how it handles spare parts to make its planes more reliable.

Last quarter, international flights arrived on-time 80 per cent of the time in the quarter, up from 75 per cent a year earlier.

Many of the company’s problems became evident more than a year ago when United switched to single computer systems for handling passenger information. The result was delays and frustration, especially for prized business travellers.

“We’ve gotten back to focusing on the basics,” Smisek said.

Still, United’s performance lagged the industry. The first quarter is a slow travel period, and is often a money-loser for airlines. This year, however, United’s biggest rival, Delta Air Lines, posted a small profit. Southwest Airlines and US Airways made money as well.

United shares fell 50 cents to close at $30.89.

There were still some issues, although some were out of United’s control. The grounding of Boeing’s 787 meant that six United jets intended for long-haul flights were parked for the whole quarter. The grounding cost United $11 million during the quarter, and the planes won’t fly again until next month, the airline said.

The Federal Aviation Administration estimated the cost to fix the six planes at $2.8 million, although it’s likely that Boeing will bear much or all of that cost.

The parked 787s meant that United cut flying even more than it had planned for the quarter. Flying capacity shrank about 5 per cent. The airline said capacity will shrink 0.75 per cent to 1.75 per cent for the full year, in part because of the 787. It plans to start 787 flights from Denver to Tokyo on June 10. Flights from Los Angeles to Tokyo and Shanghai and from Houston to Lagos, Nigeria begin in August.

United is also fighting a turf war with Virgin America for flights from California to New York. Alluding to Virgin, United said another airline added flights this month from Los Angeles and San Francisco, often at a 20 per cent discount to previous fares. United has matched those fares. The cheaper flights have boosted demand, prompting United to put more planes on the route.

United said it lost some business due to government spending cuts that began in March. United’s government passenger travel fell 25 per cent in the quarter, but it downplayed the impact, saying that category accounts for only 2 per cent of overall passenger revenue.

Smisek said about 20,000 United passengers per day are being affected by delays resulting from furloughs to air traffic controllers that began Sunday. United hasn’t had to cancel any mainline flights because of the delays, but it has cancelled flights by regional partners.

“We are disappointed that the FAA chose this path that maximizes customer disruptions and damage to airlines instead of choosing a less disruptive method to comply with its budget obligations,” Smisek said.

The FAA said it is doing its best to work with airlines to minimize delays.

United’s loss for the quarter amounted to $1.26 per share. A year earlier, it lost $448 million, or $1.36 per share, in 2012’s first quarter. The Chicago-based airline would have lost 98 cents per share excluding one-time charges, including $70 million in expenses related to its merger with Continental. That beat analyst expectations for a loss of $1.09 per share.

Revenue rose a little more than 1 per cent to $8.72 billion. A measure of fares paid per mile rose 1.9 per cent, though costs outpaced the fare growth. Per-seat costs rose about 7 per cent.

Fuel expenses fell 6 per cent, helped by less flying, slightly lower prices per gallon, and bets on fuel prices. But labour costs jumped 12 per cent. United Continental Holdings Inc. has been signing new wage deals that cover workers who came from both airlines, including a new pilot contract approved in December.

Analysts expect United to return to profitability in the second quarter, which includes the start of the summer travel season. Current estimates are for a profit of $1.98 per share.