By Rajesh Kumar Singh
CHICAGO, July 15 (Reuters) - United Airlines said on Wednesday it expected full-year profit at the high end of its previous forecast, betting strong travel demand and higher fares would help offset a renewed surge in fuel costs, even as its third-quarter earnings outlook was short of Wall Street expectations.
Shares dropped 5% in extended trading.
The Chicago-based carrier now expects 2026 adjusted earnings per share at the high end of its previous range of $9 to $11, even as it forecasts
its fuel bill will be about $6 billion higher than it expected at the start of the year.
The top end of the range is about 5% above the $10.46 per share expected by analysts surveyed by LSEG.
For the third quarter, United forecast adjusted earnings of $2.50 to $3.50 per share and an average fuel price of $3.69 per gallon. The $3 midpoint compares with analysts' average estimate of $3.60 a share, according to LSEG.
The air carrier reported second-quarter adjusted earnings of $1.99 per share, topping analysts' estimate of $1.88. Revenue rose 16% to $17.7 billion.
PRICING POWER OFFSETS FUEL HIT
Major U.S. airlines have enjoyed strong pricing power after a series of fare increases pushed through during this year's fuel shock. Investors have been watching whether carriers can continue to recover higher costs without weakening demand, while keeping capacity growth in check.
United said it recovered about 50% of the increase in fuel costs during the second quarter and expects to recover 80% to 90% of the current increase in the third quarter. It expects to fully offset the increase by the fourth quarter.
The carrier said oil prices had risen about 15% since the start of July, following renewed hostilities between the U.S. and Iran. United based third-quarter and full-year forecasts on prices as of Tuesday, July 14.
Rising costs have increased United's expected fuel expenses by about $575 million over the past two weeks. The airline said its third-quarter earnings estimate would have been $1.12 per share higher if fuel prices had remained steady from the beginning of July.
The latest surge in fuel prices highlights the risk facing airlines that raised fares during the earlier fuel shock.
Still, United expects its total revenue per available seat mile, a closely watched measure of pricing power, to grow faster year-on-year in both the third and fourth quarters than the 12.1% increase posted in the second quarter.
The company also expects fourth-quarter schedules, which are currently available for sale, to be reduced from present levels.
United will discuss its financial results in a call with analysts and investors Thursday morning.
(Reporting by Rajesh Kumar Singh; Editing by David Gaffen and David Gregorio)
