United Airlines earnings outlook underscores discounting pressure

By Rajesh Kumar Singh

CHICAGO (Reuters) -United Airlines Holdings on Wednesday forecast lower-than-expected profit in the current quarter as the industry grapples with excess seat capacity in the domestic market, which has undermined airlines’ pricing power.

The Chicago-based carrier expects an adjusted profit in the range of $2.75 to $3.25 per share in the quarter through September. Analysts expected the company to report a quarterly profit of $3.44 a share, according to LSEG data.

United’s shares were down about 1% in after-hours trading.

The company said it expects that mid-August will mark a shift in the industry’s capacity as U.S. carriers are estimated to reduce their seats by 300 basis points from a year ago.

United will also reduce its planned domestic capacity in the fourth quarter by 300 basis points to bolster pricing power, it said.

“Looking forward, we see multiple airlines have begun to cancel loss-making capacity,” said CEO Scott Kirby (NYSE:). “We expect leading unit revenue performance among our largest peers in the second half of the third quarter.”

The company will discuss the quarterly results on a call with analysts and investors on Thursday morning.

United’s comments echoed those of rival Delta, which last week forecast a significant improvement in its pricing power from August onward. Like United, Delta has forecast a lower-than-expected profit for the third quarter.

Airlines are enjoying a summer travel boom, with more than 3 million people passing through U.S. airport security checkpoints on July 7, according to the Transportation Security Administration.

However, a rush among carriers to capitalize on summer travel demand has caused overcapacity, undermining their pricing power.

Major airlines have scheduled about 6% more seats in the domestic market this month than a year earlier, data from consultancy Cirium shows.

The average round-trip ticket price for a U.S. domestic flight was $543 in May, down 1% month-on-month and 3% lower from a year earlier, according to data from Airlines Reporting Corporation (ARC).

American and Southwest Airlines (NYSE:) have cut their revenue forecasts in the second quarter, citing pressure to offer price discounts.

Analysts and industry officials say a moderation in industry capacity in the second half of the year should underpin ticket prices. Airlines have been relying on higher airfares to offset a run-up in operating costs.

United reaffirmed its 2024 profit estimate of $9-$11 a share. 

Its adjusted earnings in the June quarter came in at $4.14 a share, compared with analysts’ expectations of $3.93.