Written by Rajesh Kumar Singh
CHICAGO (Reuters) – United Airlines Inc on Wednesday forecast lower-than-expected profit in 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 fell short of Wall Street estimates. Meanwhile, American Airlines and Southwest Airlines Inc. cut their revenue forecasts for the quarter ending in June.
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, companies have oversupplied the domestic market with seats, weakening airfares on the price-sensitive side of the market.
This is a concern for an industry facing rising labor and other operating costs, and relying on higher airfares to protect profits.
In response, industrial capacity growth is expected to slow from its single-digit high to its lowest in the second half of the year, which analysts say should support ticket prices.
United expects adjusted earnings in the range of $2.75 to $3.25 per share for the quarter ended Sept. 30. Analysts had 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 reduce their seats by 3 percentage points from last year.
The airline said it will also cut its planned domestic capacity in the fourth quarter by about 3 percentage points to boost pricing power.
“Looking ahead, we see many airlines beginning to eliminate loss-making capacity,” 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 ability from August onwards.
United will discuss quarterly results on a call with analysts and investors Thursday morning.
Analysts at TD Cowen said the company’s comment reflects confidence that “the long-awaited rationalization of domestic production capacity is imminent.”
Major airlines have scheduled about 6% fewer 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 second quarter, Labor Department data showed.
United confirmed its 2024 earnings estimate of $9 to $11 per share.
Its adjusted earnings for the quarter ended June 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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