United Air falls as war, costs drive ‘bleak’ profit outlook

United Airlines Holdings Inc.’s shares fell the most in six months after the carrier warned that the suspension of flights to Tel Aviv and higher jet fuel costs would drag profit this quarter well below Wall Street’s expectations.

Adjusted earnings will be $1.80 a share in the fourth quarter if those flights remain grounded through Oct. 31, United said late Tuesday in a statement, compared with an average $2.10 from analysts’ estimates. If fighting in the Middle East keeps the ban in place through the end of 2023, the airline’s profit will be as low as $1.50 a share.

“Guidance is bleak and worse than our estimates,” Helane Becker, an analyst with TD Cowen, said in a note. “Given the projections that this will be a long war, we are looking at the lower end of the forecast range and assuming no service until at least year-end.”

US carriers suspended service to Tel Aviv earlier this month after the Hamas attack on Israel, and United has said it won’t restart flights “until conditions allow.” United has the most service to Tel Aviv among US-based airlines, accounting for 2% of the carrier’s annual capacity, with flights from San Francisco, Washington, Chicago and Newark, New Jersey. United operates 28 weekly flights between the US and the Israeli city.

United shares fell 7.2% after the markets opened Wednesday in New York, the biggest intraday decline since April 12. The stock had climbed 6.4% this year through Tuesday’s close.

Airlines also have been hit by a more than 25% jump in jet fuel prices since June. United has said it hasn’t been able to recover the higher costs through fare increases as quickly as in the past, which is normally a one- to three-month lag. The airline forecast Tuesday that fuel prices will increase to an average $3.28 a gallon in the fourth quarter from $2.95 in the third. 

Fuel and labor are the two largest expenses for carriers. Every 10-cent per gallon increase in the price per year of fuel adds $2 billion in costs for the US passenger and cargo airline industry, according to Airlines for America.

Higher fuel prices and the Middle East flight suspensions that are disrupting momentum going into the fourth quarter “would seem to reflect temporary factors, not structural impediments,” Stephen Trent, a Citi analyst, said in a note.

Fourth-quarter revenue will climb between 9% and 10.5%, United said, while analysts expect a 9.7% increase. Costs to fly each seat a mile, a gauge of efficiency, will increase 3.5% to 5% in the quarter, while capacity will climb 14% to 15.5% depending on the Tel Aviv situation.

While the airline is attributing its non-fuel cost guidance to the situation in Israel, that may only be part of the reason, Becker said. “We think cost pressures are most likely in labor, maintenance and landing fees.”

United had an adjusted third-quarter profit of $3.65 a share, compared with an average $3.34 of analysts’ estimates compiled by Bloomberg. Revenue was $14.5 billion, while analysts expected $14.4 billion. Adjusted pre-tax margin was 10.8%.

Rival Delta Air Lines Inc. reported a third-quarter profit on Oct. 12 that topped analysts’ estimates, but cut the high end of its full-year outlook on increased fuel and maintenance costs. American Airlines Group Inc. reports results Thursday.