(Adds executive and analyst comments, shares, byline)
By Jeffrey Dastin
Oct 17 United Continental Holdings Inc
on Monday said cheap airfares and higher wages from new
contracts will squeeze its results this fall, making it
difficult to be as profitable as competitors.
United, the No. 3 U.S. airline by passenger traffic, said
profit fell 80 percent to $965 million in the third quarter, due
to a one-time accounting gain last year related to taxes. The
airline's income fell 6 percent on a pre-tax basis and topped
what analysts were expecting on average, according to Thomson
While plummeting fuel costs led to a blockbuster rise in
U.S. airline earnings since 2014, oil prices have to a degree
plateaued, no longer masking drops in revenue.
Budget carriers like Norwegian Air Shuttle ASA are
fighting larger airlines over a fixed number of travelers to
Europe - and charging less per ticket.
United is offering fewer seats across the Atlantic this fall
to prop up prices and overall is optimistic about revenue in
coming months, Chief Commercial Officer Julia Haywood told
reporters Monday on a conference call.
The airline expects passenger unit revenue, which compares
sales to how many seats United flies and how far it flies them,
to decline between 4 percent and 6 percent in the fourth quarter
- a notch better than the 5.8 percent drop it posted for the
But new labor deals may delay United's goal to match the
margins of No.2 Delta Air Lines Inc, which are about
twice as large.
United and Southwest Airlines Co "face the most cost
pressure in 2017 from contracts ratified in 2016 among the large
airlines, but both are ending long, painful negotiating
processes and achieving gains in key contracts," Credit Suisse
analyst Julie Yates said in a recent research note.
For instance, a new contract for United's flight attendants
raised wages between 18 percent and 31 percent in September.
Labor costs make up the lion's share of United's forecast for
unit costs to increase between 4.75 percent and 5.75 percent,
excluding fuel and other charges.
"We think it's going to be a real advantage for us," Chief
Financial Officer Andrew Levy said of the labor deals, noting
benefits they will bring from work groups integrating.
United expects an adjusted pre-tax profit margin of 5
percent to 7 percent for the fourth quarter, about half the
Investors are looking to see if United can pass higher labor
costs on to customers through fare hikes, said Adam Hackel of
Imperial Capital LLC.
Shares were unchanged in after-hours trading.
(Reporting by Jeffrey Dastin in New York; Editing by Richard
Chang and Lisa Shumaker)