January 23, 2018 / 9:29 PM / in 5 months

United Air shares tumble as it vows to match low fares, expand capacity

NEW YORK (Reuters) - United Continental Holdings Inc (UAL.N) shares fell more than 6 percent in after-hours trading on Tuesday as the airline said it plans to increase capacity, likely threatening its profit margin as it is locked in a price war with low-cost carriers.

FILE PHOTO: A United Airlines Boeing 767-322(ER) aircraft takes off from Zurich Airport January 9, 2018. REUTERS/Arnd Wiegmann/File Photo

“The best way to compete with low-cost carriers is to match their prices,” one of its executives said on an earnings call with analysts and investors. “We can’t let low-cost carriers have price advantages in our hubs.”

The warning spooked investors, who are keeping a close eye on United’s bottom line as the company tries to prevail in a fierce fare war that has sent some ticket prices tumbling. Shares of Delta Air Lines Inc (DAL.N) and American Airlines Group Inc (AAL.O) also fell more than 5 percent after hours.

United said it expected to increase its capacity by between 4 percent and 6 percent in 2018, and would likely grow by a similar amount in 2019 and 2020, on the grounds that it would give the carrier a competitive edge in its fight against low-cost airlines.

The No. 3 U.S. carrier by passenger traffic earlier reported fourth-quarter net profit of $580 million, or $1.99 per share, compared with $397 million, or $1.26 per share, in the year-ago quarter, helped by costly last-minute ticket purchases.

Excluding special charges, United reported profit of $1.40 per share, beating Wall Street’s average estimate of $1.34 per share, according to Thomson Reuters I/B/E/S.

In the current period, higher labor costs, costlier fuel and the ongoing pricing battle are weighing on the carrier’s profit margins. United added to investors’ unease by saying it will continue to compete with low-cost airlines on price.

In the fourth quarter, United posted a 0.2 percent increase in passenger unit revenue, a closely watched measurement of an airline’s success, after a posting a sharp decline in the prior quarter.

The Chicago-based airline’s results follow a strong fourth-quarter performance and quarterly outlook by rival Delta Air Lines Inc (DAL.N), which reported better-than-expected profit earlier this month.

Reporting by Alana Wise; editing by Bill Rigby

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