LUV Southwest Airlines Co

United Continental Holdings Inc., grappling like other U.S. airlines with too much capacity, a strong U.S. dollar and competitive pricing, said its third-quarter passenger revenue declined $357 million from a year ago, helping to pull down total revenue to $9.9 billion in its seasonally best quarter from $10.3 billion a year ago.

The third-largest U.S. airline by traffic said it saw some improvement in its September unit revenue, the much-watched metric of total passenger revenue for each seat flown a mile. Last-minute business bookings were stronger than expected, due in part because a calendar shift moved two Jewish holidays into October this year. During those holidays business traffic usually declines.

United's quarterly unit revenue declined 5.8% from a year earlier, within the range of its most recent guidance, which was down 5.5% to 6%. Earlier, the company had expected a decline of 5.5% to 7.5%.

The Chicago-based company also said on Monday that it expects its unit revenue to be down 4% to 6% in the current quarter, and plans to trim trans-Atlantic capacity by up to 3.4% from the prior year's period.

In the current quarter, United expects its capacity to be up 1% to 2%, which would bring its full-year capacity up a modest 1.2% to 1.4%, the company said.

Delta Air Lines Inc., the No. 2 airline, last week said its unit revenue should turn positive early next year, helped by further trims to its capacity. In the third quarter, Delta's unit revenue fell 6.8% from a year earlier, with nearly 2 percentage points of impact from a technology outage in August that forced it to cancel more than 2,000 flights.

United had a small technology issue last week when it was loading flight schedule updates. But it was quickly fixed and only led to 16 flight cancellations, the company said. United has suffered from other outages in the past, but not nearly as severe as Delta's recent experience or a similar one that hit Southwest Airlines Co. in July.

United's third-quarter unit cost, excluding fuel and profit-sharing, rose 3.4%, including 2 percentage points of impact from new, costlier labor contracts with pilots, flight attendants, ramp workers and customer-service agents. United's mechanics are expected to vote soon on a new contract. United said it expects its fourth-quarter unit cost, excluding fuel and other items, to be up 4.75% to 5.75% from a year ago.

Andrew Levy, the chief financial officer, said United expects next year "to see a step up in our labor costs" as the company strives to motivate its employees and help it close its margin gap with its peers. He said 4 percentage points of the expected fourth-quarter increase will be due to the new contracts, not including a tentative deal with the mechanics.

Chicago-based United earned $965 million in the September quarter, or $3.01 a share. Excluding items, its earnings of $997 million, or $3.11 a share, beat Wall Street estimates. Revenue was in line with forecasts.

A year ago, the company earned $4.8 billion, but that figure was boosted by a one-time $3.2 billion noncash income-tax benefit. The company began booking taxes on its earnings this year, which caused net income to decline compared with earlier periods when it didn't book taxes. But it pays minimal to no cash taxes while it works off its billions of dollars of net operating loss carryforwards, tax credits accrued during earlier years of heavy losses.

In Monday trading, United shares closed down 0.3% at $53.03.

Write to Susan Carey at susan.carey@wsj.com

(END) Dow Jones Newswires

October 17, 2016 18:25 ET (22:25 GMT)

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