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UPDATE 1-United Air shares slide on outlook for passenger unit revenue

(Adds background, detail, updated share price)

NEW YORK, July 19 (Reuters) - Shares of United Continental Holdings Inc fell more than 5 percent on Wednesday, a day after the airline forecast "disappointing" passenger unit revenue in the third quarter.

After the market closed on Tuesday, United said passenger unit revenue, which measures sales relative to flight capacity, would be flat in the third quarter after rising 2.1 percent in the second quarter from a year ago.

"Investors were estimating 3Q17 unit revenue would be flat to up 2 (percent); our estimate was up 1.5 (percent), so the guidance is disappointing," Cowen analyst Helane Becker wrote in research note.

Major U.S. carriers have just begun to break free from a years-long negative streak in passenger unit revenue, posting increases in the metric after more than 2-1/2 years of depressed performance.

Rival Delta Air Lines Inc recorded a 2.5 percent increase in its passenger unit revenue in the second quarter and projected that the measure would continue trending positive into the third quarter, between 2.5 percent and 4.5 percent.

United, the No. 3 U.S. airline by passenger traffic, said unit operating costs, excluding fuel, rose more than 3 percent as rising labor costs weighed on the industry. Still, it posted adjusted earnings per share of $2.75, versus analysts' consensus forecast of $2.67.

The solid financial results for the period ended on June 30 came despite consumer outrage over an April incident in which a paying passenger was dragged off a United flight.

The company eventually settled with the passenger for an undisclosed amount and promised policy changes in hopes of winning back goodwill.

In a Wednesday call with industry analysts and the media, United Chief Executive Oscar Munoz conceded that the airline can at times be "stuck in the past" in its response to social media fallouts, like that from the April 9 dragging, but said updated policies were working to move the company forward.

United shares were trading at $74.49 in early afternoon, down about 5.6 percent. (Editing by Jeffrey Benkoe and David Gregorio)