Why United Airlines Shares Are Falling

United Airlines Holdings Inc UAL shares are trading lower by 4.3% to $45.56 Wednesday afternoon amid weakness in airline stocks after Spirit, Frontier and American lowered their financial outlook amid rising fuel costs.

Additionally, Reuters reported Delta and United Airlines are required by a federal judge to confront a consumer antitrust class action. This suit alleges that major U.S. carriers conspired to raise domestic airfares by limiting available seats.

U.S. District Judge Colleen Kollar-Kotelly in Washington, D.C., found significant evidence of this capacity-reduction conspiracy.

Why Fuel Costs Matter

Fuel costs are a significant expense for airlines. When fuel prices rise, it directly affects their operating costs, potentially squeezing profit margins. United is not immune to these cost pressures, and investors may anticipate that the company will also face challenges in managing its costs effectively.

Lowering financial outlooks by other airlines might also lead to increased competition among carriers for a smaller profit pool. Airlines may be forced to reduce ticket prices or engage in aggressive marketing strategies to maintain market share, which can negatively impact their revenues and, in turn, their stock prices.

What Happened?

American Airlines updated its 3Q23 financial and operational guidance due to a significant increase in fuel prices. 

AAL anticipates fuel costs between $2.90 and $3.00 per gallon (prior $2.55 to $2.65), capacity to increase by ~6% to 7% compared to 2022 (prior +5.0% to +7.0%), and total revenue to remain mostly unchanged...Read More

According to data from Benzinga Pro, UAL has a 52-week high of $58.23 and a 52-week low of $31.58.