In response to yesterday’s post, “What’s Wrong with United Again”, which included a few of United’s second quarter revenue improvements, reader Mary Lillean shares an easily readable break-out of United’s extraordinary expenses for the same quarter. Most interesting, the ERJ grounding costs, continued compensation costs related to system implementation, and the plan for significant special charges related to future capacity reductions in CLE.
United’s special charges have increased to $169 million in 2Q14 from $52 million in 2Q13. Some of these costs were incurred as part of the company’s cost saving initiative. The two major costs under special charges were related to the grounding of Embraer ERJ 135 aircraft and severance costs.
- Permanently grounding of the Embraer ERJ 135 aircraft – In 2Q14 $66 million was recorded as expenses related to the permanent grounding of the 21 Embraer ERJ 135 regional aircraft. The aircraft were grounded due to pilot shortages at regional carriers, current fuel prices, and the availability of new Embraer 175 aircraft. The company is also considering grounding the remaining nine Embraer ERJ 135 aircraft in 4Q14.
- Severance and benefits – As part of the cost restructuring initiatives, $38 million were incurred for the reduction of management and front-line employees. The $82 million severance related accruals as of 2Q14 was expected to be paid by 2015. In addition to this, average daily departures from Cleveland were reduced by 60% and management also expects significant special charges related to the planned future capacity reduction in Cleveland.
- Other non-recurring expenses – Other non-recurring expenses include $32 million impairment charges on flight equipment held for disposal associated with Boeing 737-300 and Boeing 737-500 aircraft, $17 million of integration costs which included compensation costs related to system integration, training, and relocation for employees, and $16 million related to loss on sale of aircraft and other special losses.
In 2Q14 United’s (UAL) cost per available seat mile (or CASM) was 14.91 cents compared to Delta’s (DAL) 14.63 cents, American’s (AAL) 14.62 cents , Southwest’s (LUV) 12.542 cents, and JetBlue’s (JBLU)11.88 cents. These special charges added to United’s cost. If it wasn’t for these special charges, United’s CASM would have been 14.64 in 2Q14.
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