United Airlines surges as travel demand offsets higher fuel prices

The biggest winner among U.S. airline stocks this year just got another boost.

Shares of United Continental Holdings, the parent of United Airlines, rose about 4 percent in morning trading Wednesday after the carrier lifted its profit outlook for the third time this year and said it was able to offset a more than 30 percent increase in its fuel bill thanks to strong demand and higher airfares.

“As was the case in July, we’re struggling to find things to complain about, despite our most cantankerous efforts. With many investors having questioned whether [United’s] sector-trouncing equity outperformance might stall into year-end, we believe these results strongly suggest the contrary,” said J.P. Morgan Chase senior airline analyst Jamie Baker.

United expects to offset about 90 percent of the increase in fuel prices this year, the airline said in a presentation its executives will discuss with analysts on a 10:30 a.m. ET call on Wednesday.

The airline’s shares are up more than 30 percent so far this year, an outlier among carriers that have largely struggled as investors fretted about fuel costs, generally big airlines’ second-largest expense after employee salaries. The NYSE Arca Airline Index, which tracks 15 carriers, is down more than 14 percent so far this year, while the S&P 500 is up more than 5 percent.

Recent airline reports could give the sector a lift.

Delta Air Lines also noted sharp increase in demand, particularly for its premium seats such as those in business class, that is helping it offset higher fuel costs.

On Wednesday, Deutsche Bank upgraded Delta, whose shares are down more than 3 percent so far this year and American Airlines, whose shares are off more than 34 percent, to “buy,” citing solid travel demand from consumers and the recent stock slide as “attractive entry point.”

Delta and American shares were each up by about 1.6 percent.

American Airlines reports its third-quarter earnings on Oct. 25.

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