United Continental Holdings Inc. on Wednesday said it expects unit revenue to decline more than expected in the third quarter, as the impact of Hurricane Harvey and a fare war weigh on airline earnings.
The No. 3 U.S. carrier by traffic also agreed to buy 10 additional long-haul jets from Airbus SE as part of the restructuring of an earlier order that will see United drop its plans to introduce the largest twin-engine, long-haul jet the European plane maker offers.
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United will now buy 45 Airbus A350-900 long-range planes seating around 325 passengers each. The deal has a list-price value of $14 billion and replaces a $12.6 billion, 35-plane deal for the larger A350-1000 agreed in 2013. Airlines typically get discounts from list prices.
United said lost revenue during Hurricane Harvey is just one factor expected to weigh on its earnings in the third quarter. The carrier now expects its unit revenue -- a key measure of the amount taken in for each passenger flown a mile -- will decline by up to 5% in the quarter. It had expected that unit revenue would land between down 1% and up 1%. United cut its pretax margin forecast for the quarter to between 8% and 10% from an earlier estimate of 12.5% to 14.5%
The company said in a regulatory filing that it canceled 7,400 flights in Houston during Harvey and the storm's aftermath. It didn't give a total price tag to the revenue hit, but the disruption accounted for 1.5 percentage points of the anticipated unit revenue decline, the company said. Aggressive pricing by ultradiscount carriers accounted for 1 point of the decline, and United's "basic economy" pricing was worth another point, the company said.
United rolled out its rock-bottom basic economy fares nationwide in May to compete with the discounters. Rival American Airlines Group Inc., has been slower to bring its similar offering to market, resulting in a market-share loss to American, United said without naming the larger airline.
United also said the basic economy fares have put pressure on discounters seeking a price advantage. Since late July, they have reduced fares substantially in United's hubs, the company said, and United has matched those fares. On Tuesday, three other carriers also reined in their third-quarter guidance.
United last year signaled it was reconsidering its plans to take the Airbus A350-1000, which can seat around 366 passengers. Chief Financial Officer Andrew Levy, in a statement Wednesday, said the order changes were the result of a "complete review" of its fleet plan.
The move comes as Airbus and rival Boeing Co. have struggled to win orders for their largest planes. Boeing has cut production plans for its 777 and 747 jumbo, its largest airliners. Airbus has cut production plans for its A380 superjumbos. The Toulouse, France, company also struggled to win new orders for the A350-1000. Airbus hasn't secured an order for the A350-1000 this year.
United isn't the only U.S. airline to revamp fleet plans in recent months. Delta Air Lines Inc. and American Airlines have delayed taking delivery of some of Airbus's long-range planes this year.
Airbus, which has now 177 orders remaining for its A350-1000, plans to deliver the first of the models to airlines this year. Qatar Airways -- the largest customer, with 37 of the planes ordered -- is due to receive the first of the planes.
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(END) Dow Jones Newswires
September 06, 2017 09:39 ET (13:39 GMT)
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