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United Continental cuts outlook on Harvey impact, fuel costs

Posted September 6

— United Airlines said Wednesday that Hurricane Harvey and a fare war contributed to a loss of $400 million in expected revenue, and the storm saddled the company with higher prices for jet fuel.

The company said that a key revenue-per-seat figure would fall by up to 5 percent for the third quarter. Shares of United Continental Holdings Inc. slipped in afternoon trading.

Southwest Airlines Co. said Harvey shaved up to $60 million from its revenue, and it too slightly lowered expectations for the quarter that ends Sept. 30.

Harvey — and now Hurricane Irma spinning through the Caribbean — are back-to-back setbacks for airlines that were already dealing with lower average ticket prices. In the last two days, Delta Air Lines Inc., JetBlue Airways Corp. and Spirit Airlines Inc. also lowered their outlook for third-quarter revenue.

United suffered more than any other airline from Harvey's deluge. The Continental side of the company has longtime roots in Houston, and United still operates one of its biggest hub operations at Bush Intercontinental Airport, which was closed for nearly a week by flooding.

United canceled 7,400 flights because of the storm, and it doesn't expect to resume a full, pre-storm Houston schedule until later this week. Even then, Houstonians might be traveling less than before, the airline said.

The Chicago-based company said the revenue shortfall was due to Harvey's canceled flights, falling demand in Guam since North Korea threatened that its missiles could strike near the U.S. territory in the Pacific, and lower prices.

United is locked in a fare war with Spirit Airlines in Chicago, Denver, Houston and Newark, New Jersey. United is fighting the discount airlines by rolling out so-called basic economy fares, which offer passengers a lower price but fewer amenities — they can't even stow a bag in the overhead bin.

For United, there was a hitch this summer: The airline lost customers to other big carriers that didn't have similar basic-economy tickets on many routes, Chief Financial Officer Andrew Levy said at a Cowen and Co. investor conference in Boston.

For example, if United sold basic economy for $200 and American Airlines matched the fare for a better regular economy seat, customers would pick the $200 ticket with fewer limits on American.

Delta pioneered basic economy, but American didn't go beyond a trial run until Tuesday. Levy said United will temporarily scale back its own basic-economy program.

United said it now expects that revenue for each seat flown one mile, will drop by between 3 and 5 percent in the third quarter. United had previously forecast the closely watched figure would range between down 1 percent and up 1 percent, compared with a year earlier.

The airline also forecast a sharply lower profit margin, partly because it now expects to pay about 16 cents more per gallon, a 10 percent jump, for fuel since Harvey hit Texas on Aug. 25 and shut down many refineries.

Southwest is the dominant carrier at Houston's other airport, Hobby, and Chief Financial Officer Tammy Romo said the airline canceled about 2,800 flights because of Harvey.

United shares fell $1.07 to $60.03, while Southwest gained 72 cents to $51.86 in afternoon trading.

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