United is optimistic and airline profits are expected to rise

(Bloomberg) — Shares of United Airlines Holdings Inc. rose sharply after the company forecast an improving industry outlook as airlines cut excess flights that depressed profits over the summer.

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“There is an incredible amount of unprofitable capacity in the U.S. market, and we've seen a rapid exit starting in mid-August that continues into next year,” Chief Commercial Officer Andrew Nocella told analysts during the company's earnings call third quarter on Wednesday. “The changes we have seen so far are actually just the tip of the iceberg.”

United rose as much as 13% in New York trading on Wednesday, its highest since April. Shares of Delta Air Lines Inc., Southwest Airlines Co. and American Airlines Group Inc. also rose.

Leisure travel prices have risen “rapidly” thanks to airlines cutting high-cost flights, United executives said on the conference call. At the same time, business booking revenue is rising as more employees return to offices and budget airlines sell more of their new and more expensive premium options.

United's third-quarter operating margin of 10.5% is expected to be the highest of the four largest U.S. airlines, according to Conor Cunningham, an analyst at Melius Research. Delta reported an adjusted operating margin of 9.4% last week, while American and Southwest are both due to report results on October 24.

“United’s credibility continues to grow,” he said, adding that the company’s 2021 profit targets appear “more plausible than ever.”

The airline reported third-quarter profit that beat Wall Street expectations and a fourth-quarter outlook that was in line with analysts' estimates. United also said it would buy back $1.5 billion in shares, starting with up to $500 million this year.

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