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, fresh evidence that U.S. carriers are struggling to boost profits despite record travel demand.
Last week, rival Delta Air Lines’ quarterly profit forecast also came in below Wall Street estimates. Meanwhile, American Airlines and Southwest Airlines have both cut their revenue forecasts for the June quarter.
Airlines 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. But they have booked more seats than demand in the domestic market, driving down airfares at the price-sensitive end of the market.
That’s a concern for an industry struggling with higher labor and other operating costs and relying on higher airfares to protect profits.
In response, industry capacity growth is expected to slow from high to low in the second half of the year, which analysts say will benefit ticket prices.
United expects adjusted earnings in the range of $2.75 to $3.25 per share in the quarter ending Sept. 30. Analysts had previously expected the company to report quarterly earnings of $3.44 per share, according to data from LSEG.
United said mid-August would herald a shift in industry capacity, as U.S. airlines were expected to cut seat counts 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 its pricing power, the company said.
“Looking ahead, we see multiple airlines canceling unprofitable capacity,” said CEO Scott Kirby. “We expect our largest competitors to achieve industry-leading unit revenues in the second half of the third quarter.”
Delta also predicts a significant improvement in its pricing power from August onwards.
On Thursday morning, United will discuss its quarterly results during a call with analysts and investors.
Analysts at TD Cowen said the company’s comments reflected confidence that “the long-awaited rationalisation of domestic capacity is imminent.”
Data from consultancy Cirium shows that major airlines booked about 6% more seats in the domestic market this month than a year earlier, putting pressure on airlines to cut prices.
Data from the U.S. Department of Labor shows that airfares in the U.S. fell an average of 5.6% in the second quarter from a year ago.
United reaffirmed its 2024 earnings forecast of $9 to $11 per share.
Adjusted earnings in the second quarter were $4.14 per share, while analysts had expected $3.93.
(Reporting by Rajesh Kumar Singh in Chicago; Editing by Matthew Lewis and Jamie Freed)