United raises profit outlook despite nearly $6 billion fuel hit

United Airlines on Tuesday raised its full-year profit outlook on stronger demand and better fare performance, even as a renewed surge in oil prices would add nearly $6 billion to its fuel bill this year. The estimate was based on oil prices as of July 14, and United will start basing earnings guidance on the most current fuel prices because energy-market swings have become too sharp to ignore.

For the third quarter, United forecast adjusted earnings of $2.50 to $3.50 a share and an average fuel price of $3.69 per gallon. The jump in fuel prices since the start of July alone added $575 million to expected third-quarter costs, a hit that would shave about $1.12 from adjusted earnings. United expects to recover roughly 80% to 90% of that increase, and 100% by the fourth quarter. If fuel prices had stayed at early-July levels, the company would have exceeded the high end of both its third-quarter and full-year earnings ranges.

Even with the fuel shock, United lifted the low end of its full-year adjusted earnings forecast to $9 to $11 per share from an earlier range of $7 to $11. Analysts were looking for about $10.46 a share. Shares fell about 2% in extended trading.

United reported adjusted diluted earnings of $1.99 per share on total operating revenue of $17.7 billion, up 16% from a year earlier. Fuel expense rose $2.3 billion, or about 84%, but United recovered roughly half of that increase in the quarter. Revenue was supported by Basic Economy revenue up 11%, loyalty revenue up 11%, cargo revenue up 23% and contracted business revenue up 27%. Economy cabin unit revenue rose 12% for a second straight quarter of positive growth.

The International Air Transport Association warned on June 7 that high fuel prices and Middle East disruptions were halving airline profitability.