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United Airlines' earnings are poor due to increased operating expenses

Aria Thomas

Jul 21, 2022 10:56

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United Airlines Holdings reported a lower-than-expected quarterly profit on Wednesday, its first without U.S. assistance since the beginning of the pandemic, as rising travel demand failed to offset rising operating expenditures, triggering a share sell-off.


According to Refinitiv, the Chicago-based airline's adjusted earnings per share for the June quarter was $1.43, which fell short of analysts' expectations of $1.95 per share.


United achieved a successful pandemic quarter between September 2021 and September 2022, with support from the federal government. During extended trading, the share price of the corporation fell 6.5% to $38.95.


American airlines are seeing their strongest summer travel season in three years as more people resume typical activities, including vacations. International traffic and demand for corporate travel are also on the rise, resulting in a profitable second quarter for the majority of the world's largest airlines.


However, labor restrictions have compelled them to curtail flights, preventing them from satisfying the whole travel demand. Expenses associated with operating the firm have risen in tandem with the price of gasoline.


Competitor Delta Air Lines (NYSE:DAL) issued a warning last week that cost pressures will remain significant for the duration of the year due to operational issues.


United's non-fuel costs rose by 17% compared to the same period in 2019. It is projected that cost pressure would remain elevated in the third and fourth quarters before subsiding in the subsequent year.


2019 acts as the performance baseline for carriers prior to the pandemic.


Comparing the June quarter to the prior quarter, the company's fuel expenditures climbed by 45 percent. In the current quarter, it is projected that they would moderate.


United claimed that it intends to remain profitable this year despite emerging fears that increased flying costs, persistently high inflation, and rising interest rates may restrict travel expenditures in the second half of the year.


"While the company anticipates a near- to medium-term economic downturn, the ongoing pandemic recovery is more than compensating for economic constraints, resulting in predicted sales and profit growth in the third quarter," United noted.


From September 2018 to September 2019, it is predicted that total revenue per available seat mile would climb by 24 to 26 percent, yielding in a 10 percent adjusted operating margin.


In order to avoid exhausting its resources, the business intends to maintain its capacity below the pre-pandemic level in the current and fourth quarters.


United will have a conference call with analysts and investors on Thursday morning to discuss the results.