Fee-Happy United Finally Out Of The Red

United Airlines parent UAL Corp. posted a second quarter profit of $273 million, emerging from a long financial slump and improving on some closely watched year-over-two numbers. The company cited favorable corporate and premium booking trends and particularly strong transoceanic performance. Analysts speaking with the company's executives on a Tuesday conference call sounded generally impressed. UAL's stock closed the day up more than a buck to $22.01. Why? According to UAL executives, capacity discipline and fees. [more]

United president John Tague has made his thoughts on unbundling well-known. They were never more clear than on the conference call, as he discussed the "early success" of unbundling, "the model of the future." Specifically, he said bag fees alone can produce $1 billion a year for United, "and we have only hit $400 million of that. We are only charging for 40 percent of our bags worldwide. We continue to raise the per-transaction rate and we also have slowly expanded out applicability of bag fees. My own view is that over time you'll see bag fees become more or less ubiquitous."

When asked if the other $600 million would come from higher fees or fees for people not now paying them, Tague said, "It appears the trend is firmly in place, that over time more bags will be assessed fees. It is simply an extrapolation--not a prediction. But if you look at the trend, not only in the U.S. but around the world, it is clearly towards a pay-for-bag-type service."

Meanwhile, United reported good progress on its integration efforts with merger partner Continental. Here's one benefit that saves some money and keeps seats in the sky: fewer paint jobs. According to a July 20 United investor update, the new full-year capacity estimate of flat to a 1 percent increase is up about 0.5 points, partly "due to the elimination of scheduled paint visits in anticipation of changing our livery as a result of our proposed merger with Continental later this year."