Shares of United Airlines (NASDAQ:UAL) declined in premarket trading Monday after the carrier announced plans to scale back additional unprofitable routes over the next two quarters as it prepares for a prolonged period of high jet fuel prices linked to the conflict involving Iran.
The stock dropped 1.7% in premarket trading by 05:59 ET.
The move follows a memo sent to employees on Friday by CEO Scott Kirby, who said the airline is preparing for a scenario in which crude oil could rise to $175 per barrel and remain above $100 through the end of 2027. Under those conditions, United’s annual fuel expenses would increase by about $11 billion — more than twice the profit the airline generated in what Kirby described as its “best year ever.”
The war involving Iran has triggered a new fuel price shock for airlines, with jet fuel costs nearly doubling since late February. The surge has significantly increased operating expenses across the aviation sector while also forcing carriers to modify flight paths due to airspace closures and required rerouting.
Despite the pressure from higher costs, U.S. airlines have so far been able to raise ticket prices, supported by stable travel demand and reduced seat capacity.
“There’s a good chance it won’t be that bad,” Kirby wrote regarding the airline’s fuel outlook. “But…there isn’t much downside for us to preparing for that outcome.”
United had already begun reducing less profitable flights, including certain midweek, Saturday and overnight services. The latest plan calls for roughly a three-percentage-point reduction in off-peak flights during the second and third quarters, targeting routes and time slots where demand is weaker.
The airline also plans to cut about one percentage point of capacity at its Chicago O’Hare hub and will continue to suspend flights to Tel Aviv and Dubai. Altogether, these changes amount to an approximate five-percentage-point reduction in the airline’s planned capacity for the year.
Kirby said the carrier still expects to return to its full schedule in the fall.
The additional cuts follow earlier comments from the CEO that United would prefer to leave some travel demand unmet rather than operate flights that fail to generate profit if fuel prices remain high.