Written by Rajesh Kumar Singh
CHICAGO (Reuters) – United Airlines Inc on Wednesday forecast lower-than-expected profit for the current quarter and announced plans to cut capacity, providing further evidence that U.S. airlines are struggling to lift profits despite record travel demand.
Last week, rival Delta Air Lines Inc.’s quarterly earnings forecast also fell short of Wall Street estimates. Meanwhile, American Airlines and Southwest Airlines Inc. cut their revenue forecasts for the June quarter.
Airlines are enjoying a summer travel boom, with more than 3 million people passing through security checkpoints at U.S. airports in a single day on July 7. However, they have oversold seats in the domestic market, leading to lower prices for price-sensitive airfares. End of the market.
This is a concern for an industry that faces rising labor and other operating costs and relies on higher airfares to protect profits.
In response, industry capacity growth is expected to moderate from high single digits to low single digits in the second half of the year, which analysts say should support ticket prices.
United expects adjusted earnings of $2.75 to $3.25 per share for the quarter ended Sept. 30. Analysts previously expected the company to report quarterly earnings of $3.44 per share, according to LSEG data.
United said mid-August will mark a shift in industry capacity as U.S. airlines are expected to cut their seats by 3 percentage points from last year.
The company added that it will also cut its planned domestic capacity in the fourth quarter by 3 percentage points to boost pricing power.
“Looking ahead, we see many airlines beginning to eliminate their ability to take losses,” said CEO Scott Kirby. “We expect to deliver leading unit revenue performance among our largest peers in the second half of the third quarter.”
Delta also expects a significant improvement in its pricing power from August onwards.
United will discuss quarterly results on a conference call with analysts and investors Thursday morning.
TD Cowen analysts said the company’s comment reflects confidence that “long-awaited domestic capacity rationalization is imminent.”
Major airlines have booked 6% more seats in the domestic market this month than a year earlier, putting pressure on airlines to cut prices, data from consultancy Cirium showed.
Airfare prices in the United States fell an average of 5.6% from a year ago in the June quarter, Labor Department data showed.
United reiterated its 2024 earnings forecast of $9 to $11 per share.
Its adjusted earnings for the June quarter were $4.14 per share, compared with analysts’ expectations of $3.93.
(Reporting by Rajesh Kumar Singh in Chicago; Editing by Matthew Lewis and Jamie Freed)
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