United Airlines Plans $3 Billion Buyback, But Expects Unit Revenue Drop

United Continental Holdings Inc (NYSE:UAL) on Thursday forecast a drop in unit revenue and trimmed plans for capacity growth as the U.S. dollar weighs on demand abroad, but it announced new share buybacks because its profit continues to rise.

The Chicago-based airline said it expects passenger unit revenue to decrease between 5 and 7 percent in the third quarter. Capacity will only grow between 1 and 1.5 percent in 2015 compared to a year earlier, it said, lowering a prior forecast for growth as much as 2 percent.

Shares rose more than 2 percent in pre-market trade on news of United's plans to buy back $3 billion of its stock. The capacity trim comes as a relief to investors too, who have called on U.S. airlines to limit their growth to match weaker demand.

"The $3 billion share repurchase program we announced today demonstrates the confidence we have in our future," Chief Executive Officer Jeff Smisek said in a news release.

The airline said it expects a pre-tax profit margin between 13.5 percent and 15.5 percent in the third quarter, excluding special items.

It reported a 51 percent rise in second-quarter profit to $1.19 billion. On an adjusted basis, it earned $3.31 per share, in line with analysts' average estimate according to Thomson Reuters I/B/E/S.

Despite the profit rise, United's outlook reflects the challenging revenue environment that U.S. airlines continue to face as the dollar lowers foreign travelers' spending power in the United States Domestic flights from certain U.S. cities have seen an uptick in capacity as well, contributing to United's 3.4 percent unit revenue drop in the second quarter.

Rival Delta Air Lines Inc  (NYSE:DAL) said last week that it expects passenger revenue per available seat mile, which measures sales relative to the capacity and distance of flights, to decline between 4.5 percent and 6.5 percent in the third quarter.

Frequent talks between airlines and Wall Street about slowing capacity growth to match demand have raised eyes at the U.S. Department of Justice. The regulator is investigating whether carriers have worked together illegally to keep air fares high.