On Thursday, shares of United Continental Holdings (NYSE:$UAL) dropped 11% after the company’s earnings call in which CEO Oscar Munoz stated that the company had “dug itself into a hole”.
The bleak statement from the company head sparked a massive sell-off for the airline.
In September, the company reported earnings that beat analysts expectations but stated that they were struggling to beat the competition from low-cost carriers. They also cited increasing fuel prices as a reason for the struggle.
Despite efforts to stave off a decline by increasing flight capacity, the continuing rise in fuel and other costs has proved overpowering. The company’s stock had previously taken a turn when executives refused to speculate on 2018.
Munoz stated, “I know this won’t help matters much, but I know everybody’s getting scared about the fact that we’re not going to get into these numbers because of some ominous reason. I cannot fully express to you how much in the middle of things we are.”
Joseph DeNardi, managing director at Stifel Nicolaus, stated that cost pressure could start cutting into the company’s bottom line next year.
“Estimates for the next year will probably come down,” he said.
This isn’t the first time low-cost carriers have factored into United’s decision making. Earlier this year, the company rolled out a basic economy class that prohibited overhead bins and pre-selecting seats. However, last month the CFO said the carrier had lost market share.
In the airline industry, a key measure is revenue per seat per mile. United announced that number would drop between 1 and 3%, However, the company also announced that it planned to increase the number of seats available by about 3.5% to try and stay competitive.
The company has seen its stock decline 17% so far this year, compared to 6% increases at Delta Air Lines (NYSE:$DAL) and 9% increases at American Airlines (NASDAQ:$AAL). Despite this, Thursday saw all U.S. airline stocks lower.
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