By Rajesh Kumar Singh
CHICAGO (Reuters) -United Airlines 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 boost revenues despite record travel demand.
Last week, competitor Delta Air Lines’ (NYSE:) quarterly earnings outlook also came close to Wall Street estimates. Meanwhile, American Airlines (NASDAQ:) and Southwest Airlines (NYSE:) have lowered their revenue expectations for the June quarter.
Carriers 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, they have increased the number of seats in the domestic market beyond demand, dampening fares at price-sensitive airports. end of the market.
That’s a concern for an industry that faces higher labor and other operating costs and relies on higher airfares to protect profits.
In response, capacity growth in the sector is expected to moderate from high single digits to low single digits in the second half of the year, which analysts say should support ticket prices.
United expects adjusted earnings between $2.75 and $3.25 per share for the quarter ending Sept. 30. Analysts previously expected the company to report quarterly profit of $3.44 per share, according to LSEG data.
United said mid-August would mark a shift in industry capacity, as U.S. airlines are expected to reduce their seat count by 3 percentage points from a year ago.
The airline will also reduce its planned domestic capacity by 3 percentage points in the fourth quarter to strengthen pricing power, the airline said.
“Looking ahead, we see that several airlines have begun canceling loss-making capacity,” said CEO Scott Kirby (NYSE:). “We expect leading revenue performance among our largest competitors in the second half of the third quarter.”
Delta also expects pricing power to improve significantly starting in August.
United will discuss its quarterly results on a call with analysts and investors Thursday morning.
Analysts at TD Cowen said the company’s comments reflected confidence that “the long-awaited domestic capacity rationalization is imminent.”
Major airlines have scheduled about 6% more seats in the domestic market this month than a year earlier, data from consultancy Cirium shows, leading to pressure on airlines to cut prices.
US airfares fell an average of 5.6% in the June quarter from a year ago, Labor Department data show.
United reaffirmed its 2024 earnings forecast of $9 to $11 per share.
Adjusted earnings in the June quarter came in at $4.14 per share, compared to analysts’ expectations of $3.93.
