United shares surge more than 8 percent after airline raises outlook

Key Points
  • United says it is recovering 75 percent of the increase in fuel costs through higher fares and other initiatives.
  • United's second-quarter net income dropped to $684 million, down nearly 17 percent from a year ago.
  • Airline is closing in on top candidates for a new CFO, after Andrew Levy resigned in May.
A United Airlines airplane takes off at San Francisco International Airport on June 15, 2018. 
Gary Hershorn | Corbis News | Getty Images

United Continental Holdings shares surged more than 8 percent Wednesday 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 a flight and the death of a passenger's puppy in an overhead bin in March.

Munoz has also struggled to persuade investors that the airline's aggressive growth plan wouldn't spark a fare war among airlines. The company's stock fell more than 11 percent in a single day in January after the airline said it would grow as much as 6 percent a year through 2020.

United Airlines CEO: It's nice to have 'wins' quarter after quarter

United has trimmed its plan to grow capacity for the year to no more than 5 percent, down from the maximum 5.5 percent expansion it forecast in April. While it's 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. United's second-quarter net income dropped to $684 million, down nearly 17 percent from a year ago.

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 closed at $79 on Wednesday, up 8.79 percent. 

United's search for a new chief financial officer to replace Andrew Levy, who resigned in May, is "progressing quickly" and candidates are down to a short list, said Munoz.

Delta Air Lines cut its profit outlook for the year last week. Its shares are down more than 5 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.