United rallies as pricing-power gains ease growth fears

United Continental is pushing ahead with its aggressive growth plan as robust demand enables the airline to boost fares even as it expands the seat supply. Revenue for each seat flown a mile, a proxy for pricing power, will rise 1 to 3% in Q2, the carrier said Tuesday as it reported earnings. That would be the third straight increase in the benchmark, also known as unit revenue. The pricing strength bolsters United’s bet that it can increase the number of seats and flights without sparking a fare war that would drag down profit. The carrier’s plan to boost seating capacity as much as 6 percent a year through 2020 sparked a stock selloff in January as investors anticipated depressed fares, especially in the Midwestern US markets where United is focusing much of its growth. “Investors were braced for unit revenues to be flat in Q2, but the positive 1 to 3% guidance assuaged fears” that rapid growth would hobble pricing power, said Andrew Davis, an analyst at T. Rowe Price Group, a major investor in US airlines. Investors should be relieved that United trimmed its plan for full-year capacity growth to no more than 5.5%, he said. The carrier said it would expand between 4 and 5% this quarter, following a 3.6% gain in the first three months of the year.<br/>