Why United Airlines Sales Were Down in the Fourth Quarter

January 12, 2016, 5:26 PM UTC
The United Airlines terminal at Newark Liberty Airport.
Photograph by Spencer Platt—Getty Images

United Airlines said on Monday its passenger unit revenue may have fallen more than expected in the fourth quarter just ended, after the November attacks in Paris shook traveler demand and sharply lower oil prices hurt sales to the Houston hub carrier’s energy clients.

Passenger unit revenue, which compares ticket sales to flight capacity, fell between 5.75% and 6.25% in the fourth quarter from a year ago, United Continental Holdings (UAL) said in a regulatory filing.

That compares to an earlier forecast for a drop between 4% and 6% for the October-December quarter.

The forecast may suggest continued turbulence for U.S. airlines, which suffered from steep unit revenue declines in 2015.

The Paris attacks’ impact on demand is “concerning,” said Sterne Agee CRT analyst Adam Hackel, adding that hotel bookings were down in France during the holidays. The Nov. 13 attacks by militants in which 130 people died were claimed by the Islamic State.

Hackel said, however, that United’s fare hike last week by $6 round-trip may help offset the decline.

Consumers will have little choice but to accept the rise, which was initiated by Delta Air Lines Inc and matched industry-wide.

For months, lower fuel prices have ramped up competition within the United States, enabling large U.S. carriers to chop fares in line with budget airlines that have lower operating costs, such as Spirit Airlines Inc.

United, the second-largest U.S. airline, has taken a bigger sales hit than peers from last quarter’s nearly 20% decline in U.S. crude prices.

The carrier accounted for more than 80% of flights at George Bush Intercontinental Airport in Houston last year, according to aviation data and analytics company OAG.

United said its pre-tax profit margin for the fourth quarter will be between 9.75% and 10.75%, within the range of its prior guidance of a 9.5% to 11.5% margin.

The airline also estimated its flight capacity grew 1.8% last quarter. It said the rise, at the upper end of its range of prior guidance, stemmed from improving operations and canceling fewer flights.

Under new Chief Executive Oscar Munoz, United has worked to complete more flights on time to boost customer satisfaction, the lowest among its rivals in J.D. Power’s 2015 ranking.

Munoz has been on leave since suffering a heart attack in October. United said last week that Munoz underwent a heart transplant, potentially delaying his return until the spring and renewing concerns about the company’s leadership.