By Rajesh Kumar Singh
CHICAGO (Reuters) – United Airlines Holdings Inc on Wednesday forecast lower-than-expected profit in the current quarter as the industry grapples with a surplus of seat capacity in the domestic market that has undermined airlines’ pricing power.
The Chicago-based airline expects adjusted earnings of $2.75 to $3.25 a share for the fiscal quarter ending in September. Analysts had forecast quarterly earnings of $3.44 a share, according to data from the London Stock Exchange Group.
United shares fell about 4% in after-hours trading.
United said it expects industry pricing power to improve in mid-August, with U.S. airlines expected to cut capacity by about 300 basis points compared with last year.
Her comments echoed those of rival Delta, which last week forecast a significant improvement in its pricing power from August onward. Like United, Delta forecast lower-than-expected third-quarter earnings.
Airlines are seeing a surge in summer travel, with more than 3 million people passing through security checkpoints at U.S. airports on July 7, according to the Transportation Security Administration.
However, the rush among airlines to capitalize on summer travel demand has caused overcapacity, undermining their pricing power.
Data from consulting firm Cirium showed that major airlines scheduled about 6% more seats in the domestic market this month compared to a year earlier.
The average round-trip ticket price for a domestic flight in the United States was $543 in May, down 1% month-over-month and 3% lower than a year earlier, according to data from Airlines Reporting Corporation (ARC).
American Airlines and Southwest Airlines (NYSE:) lowered their second-quarter revenue forecasts, citing pressure to offer price discounts.
Analysts and industry officials say a slowdown in industry capacity in the second half of the year will support ticket prices. Airlines have been counting on higher ticket prices to offset rising operating costs.
United reaffirmed its 2024 earnings estimate of $9 to $11 per share.
Its adjusted earnings for the quarter ended June were $4.14 per share, compared with analysts’ expectations of $3.93.
The company will discuss the results on a call with analysts and investors on Thursday morning.