United Sees Airfare Weakness on Asia, Defers Airbus Jets

(Bloomberg) -- United Airlines projected a slowdown in a benchmark financial gauge as trans-Pacific fares weaken, and the carrier delayed delivery of four Airbus SE long-haul jets earmarked for those routes.

Passenger revenue for each seat flown a mile could rise as much as 1 percent or fall by the same magnitude this quarter, United said in a statement Tuesday as it reported earnings. That trailed a recent forecast by Delta Air Lines Inc., which predicted an increase of at least 2.5 percent.

United’s weaker outlook followed a second quarter in which the carrier worked to recover from a public-relations fiasco after passenger David Dao was dragged from a plane in Chicago, suffering a broken nose and other injuries. The airline is also contending with financial pressure from a seat glut on routes to Asia, which is weighing on the financial forecast.

“You have a lot of hot money in these stocks, and my guess is it’s a combination of fast money and a little light on where consensus thought they’d be,” said said Kris Kelley, an analyst at Janus Henderson Group Plc, which holds more than 4.7 million United shares.

The carrier fell 4.8 percent to $75.13 at 11:52 a.m. in New York. The shares declined as much as 5 percent in the biggest intraday drop since March. United had gained 8.3 percent this year through Tuesday, compared with a 13 percent increase in a Standard and Poor’s index of the five largest U.S. carriers.

A350 Deferral

The carrier didn’t set a new delivery date for the A350 planes, which had been scheduled to arrive next year. United is deciding the future of its order for 35 of Airbus’s largest twin-engine jetliners as the carrier’s new management team reviews the fleet. The airline is retiring its aging Boeing Co. 747 jumbo jets, many of which ply routes between Asia and the U.S.

The earnings report wasn’t all bad news. United reported that second-quarter profit rose to $2.75 a share, beating the $2.72 estimate of analysts. Sales climbed 6.4 percent to $10 billion. The company reported a 2.1 percent increase in revenue for each seat flown a mile. That was the first gain in two years for the measure, known as unit revenue, which is a proxy for pricing power.

But analysts had been expecting a stronger forecast for unit revenue in the third quarter. Raymond James Financial Inc.’s Savanthi Syth and Morgan Stanley’s Rajeev Lalwani had estimated a gain in unit revenue of 1 percent. Helane Becker of Cowen & Co. anticipated a 1.5 percent increase.

In the second quarter, unit revenue slid 5.5 percent in the Pacific region, the only major market to post a decline, United said. In a recent investor conference, President Scott Kirby said the supply of seats across the Pacific was still too high considering that the economies of China and Hong Kong had weakened recently.

Last year, United got almost 14 percent of its revenue from the Asia region, compared with 7.4 percent for Delta and just 4.5 percent for American Airlines Group Inc.

(A previous version of this story corrected the name of the investment company in fourth paragraph.)

To contact the reporter on this story: Michael Sasso in Atlanta at msasso9@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Bruce Rule