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UPDATE 1-Top U.S. airlines forecast better Q3 profit margins, revenue
October 11, 2016 / 2:07 PM / a year ago

UPDATE 1-Top U.S. airlines forecast better Q3 profit margins, revenue

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Oct 11 (Reuters) - Top U.S. airlines on Tuesday forecast better profit margins and revenue than expected for the third quarter, as their cuts to seat supply propped up prices and as the timing of Jewish holidays boosted September travel.

American Airlines Group Inc, the world’s largest airline, said it expects an adjusted pre-tax margin between 13 percent and 15 percent, compared to prior guidance of up to 14 percent. No.3 United Continental Holdings Inc forecast a margin as high as 16 percent, from prior guidance of up to 15.5 percent.

Part of the boost is from the timing of two holidays - Rosh Hashanah and Yom Kippur - when many Jews do not travel. This year is just the fourth time since 1943 that both holidays occur in October, whereas 71 percent of the time they have taken place in September, JPMorgan analyst Jamie Baker said in a recent research note. That means the dip in travel spending that usually occurs during the holidays is shifted to the fourth quarter this year.

The forecasts also suggest that moves by the airlines to offer fewer seats on certain routes is paying off.

For months, major U.S. airlines have sold discounted tickets so they do not lose customers to rapidly growing budget carriers. Now that the peak summer travel period has ended, big airlines are slowing their own growth with the hope that prices will rise and customer loyalty will remain intact.

On Tuesday, American said it expects its flight capacity has increased only 1.5 percent in 2016 over a year ago, compared with prior plans that it would rise 2 percent. The airline also said it expects unit revenue, which compares sales to capacity, declined between 2 percent and 3 percent in the third quarter versus its prior forecast of a drop of up to 5 percent.

United similarly offered rosier guidance for passenger unit revenue because travelers spent more on last-minute trips than expected, “driven by the timing of certain holidays.”

Shares of American and United rose 2 percent and stayed flat in morning trade, respectively. (Reporting by Jeffrey Dastin in New York; Editing by Paul Simao and Bill Trott)

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