United Airlines Fare Weakness Continues Hurting Rebound

0
105

United Continental Holdings continues to suffer from a fare war during the summer.

An important gauge in pricing power will drop again during the final quarter of 2017 with an expected drop of between 1% and 3%, said the airline late Wednesday afternoon when it reported its earnings.

That is after a decline in the third quarter of 3.7% in its passenger revenue per seat flown mile or its unit revenue, a drop that stopped the airline’s short lived rebound.

This forecast underscores the slow rebound by United after slashing fares as CEO Oscar Munoz and company President Scott Kirby attempted to win customers back, battle the discount airlines and ratchet up seats and flights.

The additional supply is a possible drag as well on prices and United plans a capacity expansion of 3.5% during the fourth quarter, which is at its high end for its complete year estimate released in July, and faster paced that its rivals.

Capacity was the key from me, said one analyst, who said that Wall Street was expecting to see slower growth and investors will not like it.

On the news, United shares were down less than 1% after the close of trading Wednesday. Shares of United have slid by 6.7% this year, while the S&P index for five airlines in the U.S. has increased by 6.9%.

Severe storms which hit the southern area of the U.S. and across the Caribbean lowered United’s pretax income during the third quarter by over $185 million, the airline announced Wednesday.

The company had to close its hub in Houston for several days due to severe flooding in the area that Hurricane Harvey caused in August.

Adjusted profit for the third quarter fell to just less than $2.22 per share, but exceeded Wall Street estimates of $2.19 per share. Revenue at the airline, based in Chicago, was nearly unchanged at over $9.9 billion, and in line with analyst expectations.

Over the last few months, shares of the airline have seesawed as it expanded seat supply in its different hubs and focused on discounters like Spirit Airlines, with reduced fares on several routes.

During late July, United’s stock plunged its most in close to one year after it posted a disappointing outlook for revenue. Earlier in October, its stock surged following new indications that large airlines had started to regain pricing power.

United’s profit margin before taxes forecast of not more than 5% during its fourth quarter did little to close the gap with Delta Air Lines, the industry leader.

LEAVE A REPLY

Please enter your comment!
Please enter your name here