United Airlines sees room for fare hikes next year, even with a 737 MAX return

CHICAGO (Reuters) - United Airlines Holdings UAL.O sees room for higher U.S. fares next year, even with greater seat capacity when the grounded Boeing 737 MAX returns to the market, President Scott Kirby said at a conference on Thursday.

United Airlines first new livery Boeing 737-800 sits at a gate after arriving at O'Hare International Airport in Chicago, Illinois, U.S., June 5, 2019. REUTERS/Kamil Krzaczynski

The global grounding of Boeing Co's BA.N 737 MAX in mid-March forced airlines to cancel thousands of flights, triggering higher fares during the peak northern hemisphere summer travel season and helping lift airlines' unit revenue growth.

Once the MAX is certified to fly again following software fixes by Boeing, some investors fear that airlines will have to lower fares to fill a potential surplus in domestic air travel capacity.

Speaking at a Morgan Stanley conference, Kirby played down those concerns.

“This is an industry that prices below the point where you would expect supply and demand to intercept today, which means there’s room to raise fares,” he said.

U.S. domestic capacity is seen growing by 6% or 7% over the next 12 months, versus around 2% or 2.5% growth currently, according to analysts.

United shocked investors when it unveiled a three-year plan in early 2018 to grow its own capacity by an annual 4% to 6%, a faster rate than its competitors, but so far its strategy of running more flights out of its hubs has paid off.

Shares in Chicago-based United have risen 7% so far this year, despite headwinds like U.S.-China trade tensions, unrest in Hong Kong and the MAX grounding.

Shares in rival American Airlines Group Inc AAL.O, which also owns the 737 MAX, are down 7 percent during the same period.

Now No. 3 U.S. airline United is more likely to turn its focus on improving earnings or margins, Kirby said, noting that all of its growth is in places where it has the best competitive position.

United on Monday said it was rolling out discounts for college-age travellers, a push to foster loyalty among young adults.

Reporting by Tracy Rucinski; Editing by Marguerita Choy and Rosalba O’Brien