By Rajesh Kumar Singh
CHICAGO (Reuters) -United Airlines on Wednesday forecast a lower-than-expected profit in the current quarter and announced plans to cut capacity, providing further evidence that U.S. carriers are struggling to lift their earnings despite record travel demand.
Last week, rival Delta Air Lines (NYSE:)’ quarterly profit outlook also came in shy of Wall Street estimates. Meanwhile, American Airlines (NASDAQ:) and Southwest Airlines (NYSE:) have cut their revenue forecasts for the June quarter.
Carriers are enjoying a summer travel boom, with more than 3 million people passing through U.S. airport security checkpoints in a single day on July 7. However, they have increased seats in the domestic market in excess of demand, dampening airfares at the price-sensitive end of the market.
That is a worry for an industry that is facing higher labor and other operating costs and has been relying on higher airfares to protect profits.
In response, industry capacity growth is estimated to moderate from high-single to low-single digits in the second half of the year, which analysts say should underpin ticket prices.
United expects an adjusted profit in the range of $2.75 to $3.25 per share in the quarter ending September 30. Analysts had previously expected the company to report a quarterly profit of $3.44 a share, according to LSEG data.
United said mid-August would mark a shift in the industry’s capacity as U.S. carriers are estimated to reduce their seats by 3 percentage points from a year ago.
The airline will also reduce its planned domestic capacity in the fourth quarter by 3 percentage 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.”
Delta also has forecast a significant improvement in its pricing power from August onward.
United will discuss the quarterly results on a call with analysts and investors on Thursday morning.
TD Cowen analysts said the company’s commentary 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 lower prices.
Airfares in the U.S. fell by an average of 5.6% from a year ago in the June quarter, data from the Labor Department shows.
United reaffirmed its 2024 profit estimate of $9 to $11 a share.
Its adjusted earnings in the June quarter came in at $4.14 a share, compared with analysts’ expectations of $3.93.
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