By Rajesh Kumar Singh
CHICAGO, April 21 (Reuters) – United Airlines on Tuesday forecast second-quarter and full-year profits below Wall Street estimates as higher jet fuel prices squeeze margins and cloud its near-term outlook, even as demand for premium travel stays robust.
The Chicago-based carrier’s shares reversed earlier losses and turned higher in after-hours trading, as easing geopolitical tensions following U.S. President Donald Trump’s extension of the Iran ceasefire raised hopes that fuel prices could ease.
Analysts at Jefferies said United’s weaker outlook was largely driven by fuel costs, with underlying performance otherwise broadly in line.
The airline said its forecast was based on the Gulf Coast jet fuel forward curve as of April 17, warning that results could hit the upper end of its guidance if prices decline, or the lower end if they increase.
FUEL VOLATILITY RATTLES INDUSTRY
The cautious forecast adds to signs that the fuel shock driven by the Iran war is reshaping the economics of the U.S. airline industry.
Delta Air Lines has already pulled planned growth, while Alaska Air withdrew its full-year forecast and said current fare gains covered only about a third of its higher fuel bill. Financially weaker carriers such as Spirit Airlines are facing renewed strain.
GE Aerospace, a key supplier to airlines, has also warned that elevated oil prices are creating a tougher backdrop for its customers.
United said it expects adjusted earnings of $1 to $2 per share in the second quarter. The midpoint of the range, $1.50, is below analysts’ average estimate of $2.08, according to data compiled by LSEG.
It projected full-year profit of $7 to $11 per share, compared with an expectation of about $9.58 per share.
United said it expects to pay about $4.30 per gallon for fuel in the current quarter, underscoring the pressure from higher energy costs.
The airline said it expects to recover only 40% to 50% of the increase in fuel prices through fares and other revenue measures in the second quarter, improving to 70% to 80% in the third quarter and as much as 85% to 100% by the fourth quarter.
That suggests the airline expects its ability to recover higher fuel costs through fares and other revenue measures to improve over time, but not enough to fully offset the latest cost surge in the near term.
PREMIUM DEMAND HOLDS
United reported first-quarter adjusted earnings of $1.19 per share, beating analysts’ expectation of $1.07. Total revenue rose 10.6% year-on-year to $14.6 billion.
Premium revenue increased 14% from a year earlier, while corporate revenue rose 14% and loyalty revenue climbed 13%, showing continued resilience in the higher-margin parts of its business.
Fuel expenses rose by $340 million during the quarter, up 12.6% from a year earlier.
United said capacity in the third and fourth quarters is expected to be flat to up 2% from a year earlier, signaling a more restrained approach to growth as airlines try to protect margins.
The airline said it will remain nimble on capacity, with further cuts or additions depending on demand.
The company will discuss its financial results in a call with analysts and investors on Wednesday morning.
(Reporting by Rajesh Kumar Singh; Editing by Pooja Desai)
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