United Airlines Holdings , based in Chicago, has projected a weaker fourth-quarter earnings forecast primarily due to escalating costs, causing its shares to drop by more than 4%.
The airline expects an adjusted profit in the range of $1.50 to $1.80 per share for the December quarter, falling short of the $2.06 anticipated by analysts in an LSEG survey and significantly lower than the $2.46 per share recorded in the same period the previous year.
Profits of U.S. carriers have been negatively impacted by a surge in fuel prices since July. United Airlines has reported a more than 20% increase in its fuel costs since mid-July, with an estimated 11% rise in the average fuel bill for the December quarter compared to the previous quarter.
Furthermore, a reduction in capacity due to the suspension of flights to Israel is expected to contribute to United’s non-fuel costs, which could rise by as much as 5% in the December quarter compared to a year ago. United Airlines, with the most significant exposure to Israel among U.S. carriers, has suspended flights to Tel Aviv until conditions allow their resumption.
In the December quarter, Israel accounted for 1.9% of United’s planned global capacity, as per a Reuters analysis of Cirium data. United Airlines Holdings
The company’s shares experienced a decline of $1.84 to $38.28 in after-hours trading.
The combination of rising costs and signs of a slowdown in domestic travel demand has raised concerns about the airline industry’s profitability. This has led to a sell-off in airline stocks and prompted analysts to revise down their earnings forecasts.
Despite this, rival Delta Air Lines indicated last week that the travel boom is not over. United’s third-quarter earnings report reinforces this view, with passenger revenue increasing by approximately 15% compared to the previous year.
United Airlines reported experiencing a robust and steady domestic demand environment during the quarter. Additionally, it noted that revenue from premium products increased by 20% year-over-year in the third quarter and accounted for over half of its passenger revenue. Consumer spending through its loyalty credit cards also demonstrated double-digit growth year-to-date compared to the previous year.