United shares surge more than 8 percent after airline raises outlook

A United Airlines airplane takes off at San Francisco International Airport on June 15, 2018. 

Gary Hershorn | Corbis News | Getty Images
A United Airlines airplane takes off at San Francisco International Airport on June 15, 2018. 

United Continental Holdings shares surged more than 8 percent Wednesday morning after the third-largest U.S. airline raised its 2018 profit outlook and said higher fares are helping to recover most of the surge in fuel costs over the past year.

United is the only major airline whose stock is up this year and the recent gains represent a victory for CEO Oscar Munoz. He’s been under fire for a series of public relations disasters since early 2017, including the violent dragging of a passenger off of a flight and the death of a passenger’s puppy in an overhead bin in March.

Munoz has also struggled to convince investors that the airline’s aggressive growth plan wouldn’t spark a fare war among airlines and the company’s stock fell more than 11 percent on a single day in January.

United has trimmed its plan to grow capacity for the year to no more than 5 percent, down from the 5.5 percent expansion it forecast in April. While not a dramatic cut, investors are looking for airlines to rein in growth as fuel becomes more expensive.

United said it’s offsetting 75 percent of its higher fuel costs mainly by charging more for each seat it flies a mile, a key measure of performance, the company said in a presentation Wednesday. Fuel is the airline’s second-largest expense after labor.

United posted adjusted second-quarter profits and revenue that topped Wall Street analysts’ expectations after the markets closed Tuesday.

But the company’s sunnier outlook for the year appears to have calmed some investor worries. The airline expects to earn a full-year per-share profit of between $7.25 and $8.75, up from an estimate in April of $7.00 to $8.50. Its shares reached an intraday high of $78.65 around 10 a.m.

Delta Air Lines cut its profit outlook for the year last week. Its shares are down 6 percent so far this year.

The focus shifts to challenges at American Airlines when the world’s largest carrier reports second-quarter earnings on July 26. American’s shares tumbled more than 8 percent last week after it trimmed its revenue outlook, citing weakness in the domestic market. American’s shares are off close to 30 percent this year.

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