Rajesh Kumar Singh
CHICAGO (Reuters) – United Airlines said on Wednesday it expected lower-than-expected profit for the current quarter and announced plans to cut capacity, further evidence that U.S. carriers are struggling to boost revenue despite record demand for travel.
Last week, rival Delta Air Lines Inc. also issued a quarterly profit forecast that fell short of Wall Street expectations, while American Airlines and Southwest Airlines both lowered their revenue forecasts for the April-June period.
Airlines are enjoying a summer travel boom — more than 3 million people passed through security at U.S. airports in a single day on July 7 — but they are adding more seats than demand in the domestic market, pushing down airfares in price-sensitive markets.
That’s a concern for an industry that has relied on increasing airfares to protect profits in the face of rising labor and other operating costs.
As a result, airline capacity growth is expected to moderate to high to low single digits in the second half of the year, which analysts say should support ticket prices.
United Airlines now expects adjusted earnings to be in the range of $2.75 to $3.25 per share for the quarter ending Sept. 30. Analysts had previously expected the airline to report quarterly profit of $3.44 per share, according to LSEG data.
United Airlines said U.S. airlines are expected to cut seat capacity by 3 percent compared to a year ago, which will change capacity in the industry as soon as mid-August.
The airline also said it plans to cut its planned domestic capacity for the fourth quarter by 3 percentage points to strengthen its pricing power.
“Looking ahead, we have seen multiple airlines begin canceling unprofitable capacity,” Chief Executive Scott Kirby said. “We expect our unit revenues to be among the highest among major airlines in the second half of the third quarter.”
Delta Air Lines also expects to see significantly more pricing power from August onwards.
United Airlines is scheduled to discuss its quarterly results on a conference call with analysts and investors on Thursday morning.
Analysts at TD Cowen said the company’s comments reflected confidence that “the long-awaited rationalization of domestic manufacturing capacity is on the horizon.”
According to data from consultancy Cirium, major airlines are planning to increase the number of seats in the domestic market this month by about 6% compared to last year, putting pressure on airlines to cut prices.
U.S. airfares fell an average 5.6% in the June quarter from a year earlier, according to Labor Department data.
United Airlines reaffirmed its 2024 earnings per share guidance of $9 to $11.
The company reported fourth-quarter adjusted earnings of $4.14 per share, beating analysts’ expectations of $3.93.
(Reporting by Rajesh Kumar Singh in Chicago; Editing by Matthew Lewis and Jamie Freed)
