United Continental Holdings Inc. said a key revenue benchmark will slide the rest of this year, signaling that fast growth and a price war with discount airlines will continue to bludgeon fares.
Passenger revenue for each seat flown a mile, or unit revenue, will fall 1 percent to 3 percent in the current quarter, United said Wednesday as it reported earnings. That’s after a 3.7 percent decline in the third quarter broke up a short rebound in the gauge, a proxy for pricing power.
Continued fare weakness will add to pressure on Chief Executive Officer Oscar Munoz and President Scott Kirby as investors question United’s decisions to add seats and flights while matching prices of discount carriers. The moves have crimped United’s efforts to widen profit margins and catch up with industry leader Delta Air Lines Inc.
United’s stock has seesawed in recent months as it battled discounters’ prices and added seats through its hubs. In late July the shares tumbled the most in almost a year after a disappointing revenue outlook. Earlier this month they surged following indications that big airlines were regaining pricing power.
The market is “forgiving and forgetting very quickly and assuming that the destructive pricing behavior we lived through this summer is changing,” Evercore ISI analyst Duane Pfennigwerth said in an Oct. 10 note. “This may prove to be the correct assumption, but we need increased confidence that United’s capacity plans will one day again consider economic growth rates.”
The shares fell less than 1 percent to $67.50 after the close of regular trading in New York. United slid 6.7 percent this year through Wednesday, while a Standard & Poor’s index of five U.S. airlines advanced 6.9 percent.
Analysts have been expecting that United’s unit revenue this quarter will fall less sharply than in the third. Cowen and Co. analyst Helane Becker predicted a 1.5 percent decline, while Macquarie Group analyst Susan Donofrio estimated a 0.9 percent drop, according to notes published before the airline’s statement.
Adjusted third-quarter profit dropped to $2.22 a share, exceeding the $2.19 average of analyst estimates compiled by Bloomberg. Revenue was little changed at $9.9 billion, in line with expectations.
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