United Airlines on Wednesday reported that its second-quarter profit rose 23% to $1.32 billion, as record crowds at U.S. airports helped the carrier overcome sharply rising costs for fuel and labor.
However, United warned that third-quarter results will fall short of Wall Street expectations because of a glut of U.S. flights that has airlines cutting prices to fill seats.
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Delta Air Lines gave a similarly dim forecast last week. The airlines said, however, that across the industry carriers are trimming their schedules for mid-August and beyond, which should boost their pricing power.
Since the start of the second quarter on April 1, the number of travelers screened at U.S. airports has increased more than 6% over the same period last year, according to figures from the Transportation Security Administration. The nine busiest days in TSA’s history have occurred during that span, although two were after the second quarter ended June 30.
However, Delta reported last week that its second-quarter profit fell 29%, and it gave a weaker-than-expected forecast for its third-quarter profit.
United said Wednesday that it expects to earn $2.75 to $3.25 per share in the third quarter, which is below the average $3.38 forecast among analysts in a FactSet survey. Alaska Airlines also gave a weaker third-quarter outlook, citing a “moderating domestic revenue environment.”
Both Delta and United indicated that demand for premium travel – sitting in the front cabin – is strong. United said revenue from premium passengers grew 8.5% from a year earlier.
Pricing is weaker, however, for cheaper seats in the main cabin because airlines collectively have added so many flights. Delta executives called out budget airlines such as Spirit and Frontier for expanding too rapidly.
It’s not just the little guys, however. TD Cowen analyst Thomas Fitzgerald said he is concerned that “aggressive discounting” this summer by American Airlines is hurting revenue trends.
United contributed to the oversupply too. Its passenger-carrying capacity in the second quarter was 8.3% higher than in the same period last year. The airline said it will cut its planned U.S. capacity in the fourth quarter by about 3% from the company's previous plan.
American, Southwest and, just this week, Spirit have all cut their forecasts of second-quarter revenue in recent weeks, each citing a different reason.
Chicago-based United said its second-quarter profit worked out to $4.14 per share, excluding one-time gains and losses. Analysts expected $3.93 per share, according to a FactSet survey.
Revenue rose 6% to $14.99 billion, slightly below the analysts’ forecast of $15.04 billion.
United said its fuel bill rose 11% and labor costs increased 10.5% compared with a year earlier. Landing fees and other rents jumped 13.2%, although they make up a much smaller chunk of United's spending.
Shares of United Airlines Holdings fell immediately after release of the weak third-quarter outlook, but they were around break-even after about an hour of extended.
United executives are scheduled to discuss the results with analysts and reporters on Thursday.
Alaska Air Group, the parent of Alaska Airlines, said it earned $220 million on $2.9 billion in revenue during the second quarter, beating analysts' profit forecast.
The Seattle-based company, which also owns regional carrier Horizon Air, said that it expects to earn between $1.40 and $1.60 per share in the third quarter because of a slowing U.S. market and the cost of a tentative new contract for flight attendants. Analysts had expected $2.06 per share.