United's new flights stoke fears of industrywide seat glut

By: Michael Sasso and Mary Schlangenstein, Bloomberg News
March 15, 2017 Updated: March 15, 2017 at 2:50 pm
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United Continental Holdings boosted the number of seats the airline plans to add this year. iStock photo.

United Continental Holdings boosted the number of seats the airline plans to add this year, stoking investor concern that the industry may hurt its ability to raise prices.

U.S. carriers are heading toward their worst monthly stock decline since June, weighed down by plans from United and American Airlines Group Inc. to add flights and routes. With a recovery only now under way from a two-year slump in fares, the slide signals anxiety that the rebound may vanish.

"It's just this sense by investors that we keep adding more and more capacity, and they're somewhat frustrated," Cowen and Co. analyst Helane Becker said, pointing to recent flights added for Chicago; Newark, New Jersey; and Fort Lauderdale, Fla.

United now expects its number of seats to increase as much as 4.5 percent in the U.S., rather than 2.5 percent, according to slides prepared for a conference on Wednesday.

The airline on Feb. 27 announced the addition of 47 domestic round-trips and followed with published flight schedules last week showing significant increases. There were no indications of any offsetting cuts, analysts said.

United Chief Executive Officer Oscar Munoz told investors at a JPMorgan Chase & Co. conference on Wednesday that the boost to capacity is "not shoot-from-the hip." The new routes and flights are designed to build connectivity at its hubs and will add to profits immediately.

"This is what you would want us to do, this is what you pay us for," Munoz said.

American CEO Doug Parker on Wednesday downplayed concerns that the recent boosts to capacity by his airline and United were reminiscent of previous increases by airlines.

"It's dramatically different," he said at the conference. "These are routes being added into hubs by hub-and-spoke carriers. It's nothing like trying to open a new hub" or fighting over market share like airlines did in the past.

American earlier this month added nine routes but has said the new flights wouldn't alter its plan to grow only 1 percent across its system this year.

Wolfe Research analyst Hunter Keay issued a warning last week after Southwest Airlines Co. cut its outlook for first-quarter unit revenue. "We can say with absolute certainty that the airline recovery thesis will vanish entirely if the industry starts cheating on capacity," he said.

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