United Airlines Holdings suffered a selloff Wednesday as it posted a lower than expected quarterly profit, the first without US aid since the start of the pandemic. Booming travel demand following the pandemic was not enough to offset higher operating costs, and investors headed for the exits.
The Chicago-based air carrier reported profits well below the analysts’ expectations of $1.95 per share per Refinitiv, coming in at $1.43 per share for the second quarter.
United has only had one profitable quarter since the pandemic, Q3 of 2021, and that was achieved with government aid. Shares dropped 6.5% to $38.95 in extended trading.
Most of the major carriers are reporting a profitable second quarter as the summer travel season turns out to be the strongest in three years, with more people resuming their regular activities, including vacations. International and corporate travel are also rebounding.
One dark spot however is labor shortages, which has forced carriers to cut flights and forego fully tapping the rising demand, as it has driven up operating costs. Another is sky high fuel prices, which are also driving up operating costs.
Delta Air Lines warned last week it was seeing elevated operating costs which it expected to persist throughout the year.
United reported that its non-fuel operating costs rose 17% for the quarter, from the same period in 2019. Carriers are using 2019 as their pre-pandemic performance benchmark. They calculate the cost pressure will remain through the third and fourth quarters before easing next year.
Fuel costs surged 45% from the previous quarter, adding to the pressure. However United noted that is projections show that moderating in the current quarter.
United projected it will be profitable this year despite fears travel may be reduced in the face of rising airfares, a slowing economy, inflation, and rising interest rates in the second half of the year.
United said, “While the company anticipates the economy will slow in the near to medium term, the continuing pandemic recovery is more than offsetting economic headwinds — leading to expected revenue and earnings acceleration in the third quarter.”
United went on to estimate total revenue per seat-mile to be up 24%-26% in the third quarter from the same period in 2019, equaling an adjusted operating margin of 10%. But it also noted it plans to maintain a lower capacity than its pre-pandemic level in the current and fourth quarter to avoid overextending itself.
United will have an official earnings call with analysts and investors on Thursday in the morning.
