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Oct 11, 2019

United follows American, Southwest in pulling 737 Max until 2020

FAA Faulted by Panel in Approving Boeing's 737 Max

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United Airlines Holdings Inc. raised its 2019 profit forecast for the second straight quarter, citing strong travel demand and lower-than-expected fuel prices in the late summer.

Earnings will climb to at least US$11.25 a share this year, the carrier said in a statement Tuesday as it reported third-quarter results that showed robust travel demand. That compares with an outlook of at least US$10.50 a share in July, when United also raised its expectations for this year’s performance.

The carrier is reaping the rewards of a turnaround plan it set out in early 2018, which called for aggressive growth to boost connecting traffic and profitability at hubs in Chicago, Houston and Denver. Chief Executive Officer Oscar Munoz said United is “ahead of pace” to achieve its 2020 earnings target of US$11 to US$13 a share, a goal he established last year.

United rose 1.3 per cent to US$89.05 after the close of New York trading. The shares have advanced 5 per cent this year, trailing the 6.9 per cent gain of a Standard & Poor’s index of major U.S. airlines.

Max Costs

Adjusted earnings rose to US$4.07 a share in the third quarter, United said. That topped the average estimate of US$3.97. Sales climbed to 3.4 per cent to US$11.4 billion, in line with estimates.

The Chicago-based airline paid an average of US$2.02 a gallon for jet fuel in the quarter, 13 per cent below the same period last year, despite a Sept. 14 terrorist attack on Saudi Arabian oil facilities that briefly caused prices to spike. Most of that production was restored within weeks. United’s per-gallon fuel cost was 10 cents less than the low end of the company’s own forecast.

In the fourth quarter, revenue for each seat flown a mile, a closely watched gauge of pricing power, will be flat to up 2 per cent. United expects full-year growth of 3.5 per cent in its capacity of flights and seats, in line with its forecast in July, owing in part to the absence of Boeing Co.’s 737 Max. United has removed the model from its schedule through Jan. 6 and was forced to pare back its initial plan to expand 2019 capacity as much as 6 per cent.

Non-fuel costs for each seat flown a mile are expected to rise 1.2 per cent this year, United said, surpassing the 1 per cent target for so-called unit costs. The carrier blamed the increase on the grounding of the Max and separate flight reductions made in response to political tensions in India, Pakistan and Hong Kong.

Delta Disappointment

Delta Air Lines Inc., which doesn’t have any Max jets, disappointed investors last week when it said unit costs would rise next year as much as a full percentage point more than its long-term goal of no more than 2 per cent.

The Max’s flying ban has pressured airlines’ per-mile seat costs, a measure that typically rises as capacity drops. United had 14 Max planes in its fleet when regulators grounded the model in March following two deadly crashes in a five-month span. The airline had planned to expand its Max fleet to 30 by year-end.

The return of the Max is expected to help ease cost pressures for U.S. airlines that fly it, although analysts have expressed concerns that it could spur an increase in available seats and thereby pressure fares.