United Tumbles After Reducing Revenue Forecast on Fares

United Continental Holdings Inc. (UAL) fell the most in almost two years after lower fares overseas spurred the world’s largest carrier to cut its third-quarter forecast for a benchmark revenue gauge.

The shares dropped 9.3 percent to close at $30.91 in New York, the biggest drop since Oct. 3, 2011. That sent the Bloomberg U.S. Airlines Index lower by 2.8 percent.

United reduced its revenue forecast for each seat flown, citing lower fares on some overseas flights operated in conjunction with other airlines and rivals adding seats on China routes. Advanced bookings for the next six weeks in the Pacific region are down 1.7 percent compared with the same period a year earlier, the Chicago-based carrier said yesterday.

The airline has “a larger exposure” to the Chinese market than its U.S. competitors, Duane Pfennigwerth, an analyst at Evercore Partners Inc. (EVR), said in an e-mail. “China remains an important market for the airline and one they would be unlikely to pull back from.”

Pfennigwerth, who is based in New York, rates the shares equalweight, the equivalent of a hold recommendation.

United’s revenue for each seat flown a mile will increase 2.5 to 3.5 percentage points, according to a filing yesterday, a range that was about 1 percentage point less than previous projections. While advanced bookings in the Pacific region are down, all other areas are higher.

“Pacific revenue weakness likely extends into” all of 2014 based on a 19 percent capacity increase in airline seats between the U.S. and China this quarter and an expected 17 percent jump in the fourth quarter, Daniel McKenzie, an analyst at Buckingham Research Group Inc., said in a report today.

McKenzie lowered his rating on the shares to neutral from buy.

To contact the reporter on this story: Caroline Chen in New York at cchen509@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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