United Continental reported better-than-expected quarterly earnings as strong demand for air travel helped offset rising fuel costs.
The No. 3 U.S. airline’s fuel expenses surged 43% to $2.39 billion in the second quarter, weighing on its net profit, which fell nearly 17% to $684 million.
But revenue rose close to 8% from the year-ago period to $10.78 billion, slightly higher than Wall Street estimates of $10.72 billion, while revenue per available seat mile — a key metric for airlines — increased 2.8%.
United’s adjusted earnings came in at $3.23 per share, topping the $3.07 per share that analysts polled by Thomson Reuters expected.
“We delivered great financial results and strong operational performance in the second quarter despite the significant headwind of higher fuel prices,” CEO Oscar Munoz said in a news release. “These results are the strongest evidence yet that our strategic growth plan is working, and we are well positioned to carry our momentum into the second half of the year.”
As CNBC reports, “Airlines have been grappling with a profit-crimping surge in fuel costs, generally their second-largest expense after labor. It poses a conundrum for airlines that are trying to capitalize on robust travel demand — albeit at smaller profit margins.”
United has been pursuing growth by expanding capacity and adding connecting flights at its mid-U.S. hub airports in Chicago, Denver, and Houston to attract business customers.
Some investors have been concerned that the additional capacity would suppress airfares, putting more pressure on the bottom line. But United delivered an earnings surprise in the first quarter and, in its latest earnings report, trimmed its forecast for full-year capacity growth to as much as 5% from the up to 5.5% it projected in April.
“That seemed to signal United’s willingness to eliminate flights that are only marginally profitable with current fuel prices — something investors are pushing airlines to do,” The Associated Press said.
With the summer season hitting full speed, United is also expecting revenue per available seat mile to rise by between 4% and 6% through September.