United Airlines Returns to Profit but Cautions on High Fuel Prices and Economic Slowdown

“Industrywide operational challenges that limit the system’s capacity, record fuel prices and the increasing possibility of a global recession are each real challenges that we are already addressing,” he said.

The Chicago-based carrier said there is strong appetite for travel and expects additional revenue growth in the current quarter, despite growing concerns about inflation and an economic slowdown. The resilient demand has allowed United and other airlines to charge fares that are high enough to offset their own rising costs.

United said it earned a profit of $329 million during the quarter as revenue rose 6% from the same period in 2019. That year, the last before the pandemic decimated demand for travel, has continued to serve as the industry’s baseline. The airline said it expects total revenue to climb 11% from 2019 levels in the third quarter.

On an adjusted basis, United’s $1.43 per share profit fell short of the $1.85 that Wall Street analysts were expecting, according to FactSet. That was largely due to fuel costs that came in 16 cents a gallon higher than the airline had anticipated, the airline said.

United shares fell 7% in after-hours trading.

United also is curbing growth as it looks to add some slack back into its network and avoid delays and cancellations. The airline on Wednesday said it plans to fly 89% of 2019 levels in the third quarter and 90% in the fourth quarter.

The airline plans to expand its flying capacity by at most 8% next year versus 2019 levels, below the 20% growth it had previously planned.

Airlines are once again making money as travel demand has largely recovered from the depths of the Covid-19 pandemic, when their planes were nearly empty at times. But the industry still isn’t as profitable as it was before the pandemic, as the price of fuel, higher labor costs and other expenses have eaten into their margins.

United paid $4.18 a gallon for fuel during the quarter, higher than the $4.02 it had predicted in May. Fuel prices have eased since the spring, providing some relief, but are significantly higher than they were last year.

There are new challenges on the horizon. While airlines say signals still point to strong travel demand beyond summer, analysts have said their outlook is murkier after Labor Day, when family vacations typically slow down and carriers rely more on corporate customers, whose return is unclear.

Airlines have also struggled this summer with their own staffing levels, as well as shortfalls at airports and within air-traffic control, resulting in tumult for passengers. Their efforts to restore more-reliable operations are also adding to costs and limiting revenue growth.

In May, United canceled 2.4% of flights, according to government data––more than any carrier besides

Delta

Air Lines Inc. United cut 50 daily domestic flights from its Newark hub this month in an effort to relieve congestion there, citing construction projects and staffing shortages among air-traffic controllers. United said Wednesday that outside of Newark, its operating results were in-line with 2019.

Several rivals also have pulled back flying plans after overextending themselves in an effort to capture much-needed revenue. Delta said last week that it would cap flying at June levels for at least the rest of the year in an effort to avoid the kinds of pitfalls it experienced in May and June, when it had high levels of delays and cancellations.

Airlines and government officials have traded blame for the snafus. United and other carriers have said that air-traffic control problems have jammed up flights, particularly in the New York area and in Florida. The Federal Aviation Administration has said that isn’t the cause of most problems, and has pointed instead to airlines’ own staffing levels.

Transportation Secretary

Pete Buttigieg

warned airlines before the July 4 holiday that they needed to show improvement. So far they have, with rates of delay and cancellations easing this month. But staffing shortages at some major European airports have contributed to massive lines, lost bags and other flight chaos. Major hub airports there have taken unprecedented steps to try to cap the flow of passengers that has taxed their operations beyond what they can handle.

Airlines including United also face unrest among labor groups. United was the first major carrier to strike a tentative deal with its pilots union on a new contract. But the two sides are going back to the negotiating table after pilots objected to elements in the agreement.

“Industrywide operational challenges that limit the system’s capacity, record fuel prices and the increasing possibility of a global recession are each real challenges that we are already addressing,” he said.

The Chicago-based carrier said there is strong appetite for travel and expects additional revenue growth in the current quarter, despite growing concerns about inflation and an economic slowdown. The resilient demand has allowed United and other airlines to charge fares that are high enough to offset their own rising costs.

United said it earned a profit of $329 million during the quarter as revenue rose 6% from the same period in 2019. That year, the last before the pandemic decimated demand for travel, has continued to serve as the industry’s baseline. The airline said it expects total revenue to climb 11% from 2019 levels in the third quarter.

On an adjusted basis, United’s $1.43 per share profit fell short of the $1.85 that Wall Street analysts were expecting, according to FactSet. That was largely due to fuel costs that came in 16 cents a gallon higher than the airline had anticipated, the airline said.

United shares fell 7% in after-hours trading.

United also is curbing growth as it looks to add some slack back into its network and avoid delays and cancellations. The airline on Wednesday said it plans to fly 89% of 2019 levels in the third quarter and 90% in the fourth quarter.

The airline plans to expand its flying capacity by at most 8% next year versus 2019 levels, below the 20% growth it had previously planned.

Airlines are once again making money as travel demand has largely recovered from the depths of the Covid-19 pandemic, when their planes were nearly empty at times. But the industry still isn’t as profitable as it was before the pandemic, as the price of fuel, higher labor costs and other expenses have eaten into their margins.

United paid $4.18 a gallon for fuel during the quarter, higher than the $4.02 it had predicted in May. Fuel prices have eased since the spring, providing some relief, but are significantly higher than they were last year.

There are new challenges on the horizon. While airlines say signals still point to strong travel demand beyond summer, analysts have said their outlook is murkier after Labor Day, when family vacations typically slow down and carriers rely more on corporate customers, whose return is unclear.

Airlines have also struggled this summer with their own staffing levels, as well as shortfalls at airports and within air-traffic control, resulting in tumult for passengers. Their efforts to restore more-reliable operations are also adding to costs and limiting revenue growth.

In May, United canceled 2.4% of flights, according to government data––more than any carrier besides

Delta

Air Lines Inc. United cut 50 daily domestic flights from its Newark hub this month in an effort to relieve congestion there, citing construction projects and staffing shortages among air-traffic controllers. United said Wednesday that outside of Newark, its operating results were in-line with 2019.

Several rivals also have pulled back flying plans after overextending themselves in an effort to capture much-needed revenue. Delta said last week that it would cap flying at June levels for at least the rest of the year in an effort to avoid the kinds of pitfalls it experienced in May and June, when it had high levels of delays and cancellations.

Airlines and government officials have traded blame for the snafus. United and other carriers have said that air-traffic control problems have jammed up flights, particularly in the New York area and in Florida. The Federal Aviation Administration has said that isn’t the cause of most problems, and has pointed instead to airlines’ own staffing levels.

Transportation Secretary

Pete Buttigieg

warned airlines before the July 4 holiday that they needed to show improvement. So far they have, with rates of delay and cancellations easing this month. But staffing shortages at some major European airports have contributed to massive lines, lost bags and other flight chaos. Major hub airports there have taken unprecedented steps to try to cap the flow of passengers that has taxed their operations beyond what they can handle.

Airlines including United also face unrest among labor groups. United was the first major carrier to strike a tentative deal with its pilots union on a new contract. But the two sides are going back to the negotiating table after pilots objected to elements in the agreement.