United's $4.80 fuel forecast drags down its fourth quarter

United Airlines reported adjusted earnings of $2.54 a share for the third quarter on October 20, down 8.6 per cent on a year earlier, and forecast $0.50–$1.50 for the fourth quarter. The midpoint of that range is well below the $1.88 analysts had expected, according to Investing.com, and the shares fell almost 4 per cent in after-hours trading.

Revenue was a record $17.9bn for a third quarter, up 17.4 per cent, on capacity that grew only 1.3 per cent. Premium and loyalty revenue each rose 17 per cent, cargo 23 per cent and revenue from contracted business customers 26 per cent.

Fuel is the reason the revenue did not reach the bottom line. United paid an average of $3.90 a gallon, up 60.3 per cent, and its fuel bill rose 61.6 per cent to $4.84bn.

The fourth quarter assumes worse. United expects to pay about $4.80 a gallon, based on the Gulf Coast jet fuel forward curve on October 16, and says the analyst consensus was about $4.35.

That gap explains most of the guidance shortfall. United says each cent a gallon is worth about 2.5 cents a share and puts the 45 cent difference at roughly $1.00 a share, and at consensus fuel prices the midpoint of its range would be about $2.00, above what analysts expected.

The full-year picture has changed sharply. United raised its 2026 guidance to $9–$11 a share in July, while adjusted earnings for the first nine months total about $5.72, which with the new fourth quarter range points to roughly $6.20–$7.20; its latest investor update gives no full-year range.

Delta expects to pay $4.25 a gallon in the fourth quarter, including a benefit of about $0.40 from its own refinery, whereas United pays something close to the market price in full.

Demand is not the problem. United expects fourth quarter revenue growth to exceed 20 per cent, a record for the period, and expects unit revenue growth to accelerate while growth in unit costs excluding fuel slows from the 7.8 per cent recorded in the third quarter.

United ended the quarter with $17.7bn of available liquidity, adjusted net debt of $20.5bn and net leverage of 2.4 times earnings before interest, tax, depreciation and amortisation, and plans capital spending of about $7.5bn this year.

Pre-tax earnings on an unadjusted basis rose 4.5 per cent to $1.3bn, while adjusted pre-tax earnings fell 8.7 per cent to $1.1bn, a margin of 6.2 per cent.

What to watch: the earnings call at 9.30am Chicago time on October 21, where chief executive Scott Kirby will be pressed on fourth quarter fares, followed by American Airlines and Southwest Airlines on October 22.