Economy

United Airlines Adding Flights, Price Matching

United Airlines Adding Flights, Price Matching”

Airline stocks are sinking Wednesday, in a repeat of last October's dive, after United Airlines (UAL) vowed to keep matching fares from low-priced rivals, renewing fears of a price war that could hit earnings across the industry.

Some Wall Street analysts appear to be unconvinced the United strategy would help it grow margins.

Shares of United Continental Holdings Inc. slid more than 11% Wednesday, as concerns about the company's plan to expand capacity in the next three years offset a fourth-quarter profit and revenue beat.

The presentation gave CEO Oscar Munoz along with other top brass at United an opportunity to impress its investors, who dumped shares following a tense earnings call with executives last quarter that gave a not so clear picture of costs and other important metrics for 2018.

United posted net profit of $580 million, or $1.99 a share, for the quarter, up from $397 million, or $1.26 a share, in the year-earlier period, benefiting from increased demand for air travel. "We can't let low-priced carriers have price advantages in our hubs".

The airline released per share earnings forecast of $6.50 to $8.50 for this year.

Kirby said United can't afford to ignore discount carriers like Spirit Airlines because half of United's customers choose an airline mostly on ticket price.

However, immediately after, shares plunged during trading after-hours at the time of an investor presentation that has been long awaited in which United unveiled its strategy to add additional seats while maintaining a tight lid on its costs.

Cowen analyst Helane Becker said she had been expecting 4% to 6% capacity growth this year, but then a slowing growth rate after that. While United benefits from lucrative global operations at its coastal redoubts in San Francisco and Newark, New Jersey, profit margins at its mid-continent hubs - Chicago, Houston and Denver - trail rivals by 10 percentage points, Kirby said. And the company is targeting 2018 earnings per share of $6.50-$8.50, a figure that will swell to $11-$13 a share in 2020.

United forecast Q1 unit revenue in a range of flat to up 2% - better than the 0.2% increase it put up for Q4, which was largely in line with the company's expectations. Capacity growth was seen coming in at 3.5%-4.5%. Revenue rose 4.3 percent to $9.44 billion, in line with expectations. Pretax margins were 6.7%.

"We definitely understand management's decision to focus on improving their domestic network as the company admittedly shrunk too much post the Continental merger, but that was nearly a decade ago and investors are likely to be somewhat frustrated by United's aggressive growth rate", Becker wrote.

American in November launched daily nonstop service from Los Angeles to Beijing; United this month said it would remove charges on passengers' second checked bag on flights from North America to China and Hong Kong.

A worry is that the increased capacity, especially the US market, where United a year ago had said some fares had dropped to $10, will mean the airline will have to match competitor fares.



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