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Earnings Preview: UAL seen posting 3Q loss

United Airlines parent UAL Corp. is scheduled to report third-quarter results on Tuesday. The following is a summary of key developments and analyst opinion related to the period.
/ Source: The Associated Press

United Airlines parent UAL Corp. is scheduled to report third-quarter results on Tuesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Chicago-based United is the first of the big hub-and-spoke carriers to report third-quarter results, after Southwest Airlines Co. reported a small loss last week. Analysts expect a loss for United.

Travel has fallen sharply from a year ago. United reduced capacity 5.7 percent during the quarter to meet lower demand. And for much of this year the carrier has run fare sales to keep the seats full on the planes it's still flying, although fares have begun rising in recent weeks.)

But the trouble is business travel. There isn't enough of it to make United and many of the other big carriers profitable. The International Air Transport Association reported on Thursday that the number of people flying in "premium" seats fell 12 percent in August compared to a year earlier. The airline trade group estimated that premium fares are down 18 percent compared to a year ago.

BY THE NUMBERS: As of Friday, analysts surveyed by Thomson Reuters expected UAL to lose 94 cents per share or roughly $137 million. A year ago, UAL lost $779 million as it suffered from both expensive jet fuel and accounting charges for its hedges as oil prices fell.

Analysts expect third-quarter revenue of $4.34 billion. That would be a drop of 22 percent from the third quarter of 2008.

ANALYST TAKE: Wall Street has been happy that several big airlines, including United, have shown in recent weeks that they can still borrow money. United announced earlier this month that it would borrow $659.1 million against 31 planes. Most of that money will pay off old debt, leaving United with about $90 million in new money. Even though it's secured debt, United is paying 10.4 percent interest.

Barclays Capital analyst Gary Chase wrote it's impressive that airlines can still raise money but, "we think it is high time to make money and there is a significant difference between the two. We expect investors will be keenly focused on that distinction."

Wall Street has also been happy that airlines have cut capacity this year. The idea is that reducing the supply of seats will allow airlines to charge higher fares. Doing more flying isn't an option for most carriers at the moment, but it might be if demand recovers.

"The key, as always, is capacity," Chase wrote, "and investors are likely to treat capacity ambition (no matter how creatively explained or justified) with a very harsh response."

STOCK PERFORMANCE: UAL shares nearly doubled during the quarter, rising from $4.65 to a high of $9.22. Other airline shares performed well during the quarter, too, as fuel prices stayed manageable and bankruptcy fears faded. UAL shares fell 18 cents, or 2.4 percent, to $7.46 in afternoon trading on Friday.