United Airlines beats expectations for 2Q profit but signals that average fares won't rise as quickly
DALLAS (AP) -- A return to higher fares helped boost United Airlines' second-quarter profit above Wall Street expectations, but the momentum behind rising prices could be fading.
United said Tuesday that it expects a key revenue per seat figure to be flat in the July-through-September quarter. That tepid forecast fell far short of Delta Air Lines' outlook for the rest of summer, and United's shares dropped in extended trading.
There are particular reasons for United's more cautious outlook, including its exposure to competitive U.S.-China routes and Delta's greater reliance on the strong U.S. travel market. Still, United's third-quarter forecast is likely to renew investors' concerns that airlines are again growing faster than demand requires, leading to too many seats for sale.
United said that revenue for every seat flown one mile rose 2.1 percent in the second quarter. But it forecast that the same, closely watched measure would be flat - between up 1 percent and down 1 percent - in the third quarter, when the airline expects to grow its passenger-carrying capacity by 4 percent.
Chicago-based United, the third-largest U.S. carrier by revenue behind American and Delta, is trying to rebound after mistakes such as using too many small planes on key business-travel routes. More recently, CEO Oscar Munoz has set out to fix the airline's reputation for poor customer service, which hit a low in April when employees called Chicago airport officers to drag a 69-year-old man off an overbooked flight - although there was never an indication that the incident hurt ticket sales.
There have been signs of improvement. In the latest government figures, covering May, United's on-time rating was virtually the same as Delta's and better than American's, and it canceled flights less often than American or Southwest. Its rate of consumer complaints, however, was still higher than average.
Munoz said in a statement that United was narrowing the profit-margin gap with rivals, and that improving financial and operating figures show "that United is firmly on the right path." He conceded that the company still has work to do before realizing its potential.
Airline executives are scheduled to discuss the results and outlook in a call with analysts and reporters on Wednesday.
United Continental Holdings Inc. said second-quarter net income rose to $818 million, a 39 percent increase from a year ago, when profit was hurt by one-time charges related to United's hub airport in Newark, New Jersey.
Excluding non-repeating items, United said it would have earned $2.75 per share. That topped the average estimate of $2.72 per share from nine analysts surveyed by Zacks Investment Research and $2.68 per share from 17 analysts polled by FactSet.
Revenue rose 6 percent to $10 billion, also surpassing analysts' forecasts of $9.96 billion to $9.97 billion.
United shares fell 88 cents to close Tuesday at $78.90. After the release of financial results and the lackluster forecast of third-quarter revenue per mile, they dropped another $2.80, or 3.6 percent, to $76.10.
David Koenig can be reached at http://twitter.com/airlinewriter