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DALLAS (AP) — Shares of United Airlines' parent company fell Thursday after it said a key revenue measure declined in the third quarter, raising concern about travel demand and pricing.
THE SPARK: United Continental Holdings Inc. said passenger revenue per available seat mile dropped by 1 to 2 percent in the July-to-September quarter. The statistic is a closely watched measure of pricing power in the airline business, and United's decline occurred during what is normally a strong quarter for airlines.
Airlines have been reducing passenger-carrying capacity to offset uncertain demand in a weak economy. United said it cut capacity 1.4 percent in the third quarter, including regional flights under the United Express banner. It made slightly deeper cuts in domestic capacity, but it also reduced international flying.
United is the world's largest airline. Like other airlines, it has struggled with high fuel costs. United has also stumbled in combining its operations with Continental Airlines, which it bought in 2010, resulting in outages of its reservations system.
THE ANALYSIS: Dahlman Rose & Co. analyst Helane Becker said in light of the revenue measure, analyst estimates for United's third-quarter profit must be lowered, although she didn't change her forecast of $1.41 per share.
Becker said United's forecast of future bookings was better than she expected. The company said that the percentage of seats sold was running higher than at this time last year for both domestic and international travel. United made it easier to achieve that mark by its capacity reductions.
JPMorgan analyst Jamie Baker said United's guidance Thursday was mixed — fuel and other operating costs were lower than he expected, while revenue was "on the lighter side." He knocked his estimate of third-quarter earnings to $1.35 per share from $1.37.
Becker and Baker had been more bearish than other analysts. The average forecast of those surveyed by FactSet is for profit of $1.77 per share for the third quarter.
SHARE ACTION: United shares fell 65 cents, or 3.2 percent, to $19.51 in midday trading. In the past 52 weeks, the shares have ranged from a low of $15.51 last November to a peak of $25.84 in May. Through Wednesday's close, the stock was up 6.8 percent for 2012.