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United 2Q profit falls 51 per cent

Associated Press Associated Press 20/07/2016

United Airlines' second-quarter profit dropped 51 per cent as revenue fell as a result of lower average fares, which are expected to persist through the rest of the (northern) summer.

The results were dragged down by a $US412 million ($A549.00 million) write-down of its operations at Newark, New Jersey, and by paying taxes - it didn't last year. Still, the reduced profit beat Wall Street expectations.

And United said on Tuesday that it approved buying up to $US2 billion more of its own stock - a move that will make existing shares more valuable.

But airline investors lately have been obsessed with a decline in average fares that started in early 2015 and picked up speed this year.

Fares are falling because airlines are using today's cheaper jet fuel to add flights faster than demand is growing. Even though fuel crept up earlier this year, it is still a relative bargain - United saved $US669 million, or 32 per cent, compared with last year's fuel bill.

In an attempt to shore up prices, United announced that it will trim its plans for growth later this year ever so slightly. Instead of increasing flying by 1 or 2 per cent, it will grow by between 1 and 1.5 per cent for the full year.

Whether that is enough to make a difference to investors remains to be seen.

United said that revenue for every seat flown one mile fell 6.6 per cent in the second quarter. That is a key measure of pricing power and tracks average fares. United predicted that the figure would fall by a similar amount - between 5.5 per cent and 7.5 per cent - in the third quarter.

United Continental Holdings reported net income of $US588 million in the second quarter, which includes the start of the all-important (northern) summer travel season. That was down from $US1.19 billion a year earlier.

Excluding one-time items such as a write-down of its Newark operations, profit was $US2.61 per share, 5 US cents better than analysts expected, according to a FactSet survey.

Revenue fell 5.2 per cent to $US9.40 billion, just beating the analysts' $US9.39 billion estimate.

United shares rose 14 US cents to close at $US47.85 before the results were released and slipped 52 US cents in extended trading. They are down 16.5 per cent in 2016.

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