United Airlines (NASDAQ:UAL) posted stellar earnings growth in the first half of 2019, as solid demand and lower fuel prices allowed the airline to expand its adjusted pre-tax margin to 8.6% from 6.5% a year earlier. As a result, adjusted earnings per share soared 45% year over year, to $5.32.

On Tuesday afternoon, United Airlines reported that earnings continued to grow at a rapid rate in the third quarter, surpassing management's initial forecast for the quarter. The company also raised its full-year guidance. That said, there are growing signs that United's earnings momentum is starting to peter out.

Earnings per share soars again

Entering the third quarter, United Airlines projected that passenger revenue per available seat mile (PRASM) would increase 0.5% to 2.5% year over year, while adjusted nonfuel unit costs would rise 1% to 2%. Meanwhile, the company expected to pay between $2.12 and $2.22 per gallon for jet fuel, down from $2.32 per gallon a year earlier. Due primarily to this expected drop in fuel costs, United estimated that its pre-tax margin would widen to between 10% and 12% in the third quarter, up from 9.6% in Q3 2018.

Ultimately, United's adjusted pre-tax margin reached 12.1% in the third quarter. As a result, adjusted earnings per share (EPS) surpassed the average analyst estimate at $4.07 -- up 33% year over year -- on revenue of $11.4 billion.

A United Airlines jet on a runway

United Airlines reported another quarter of stellar EPS growth on Tuesday afternoon. Image source: United Airlines.

That said, United Airlines needed a sharp drop in fuel prices to achieve this earnings beat. PRASM rose 1.7% last quarter -- in line with United's forecast -- with strong performance in most regions of the world offsetting weakness in China. However, nonfuel unit costs rose slightly more than expected, increasing 2.1% year over year.

Fortunately, United's average fuel price came in at $2.02 per gallon, $0.15 per gallon below the midpoint of its guidance range. This boosted its pre-tax margin by approximately 1.5 percentage points, driving about half of the company's earnings growth for the quarter.

Margin expansion is set to slow

In conjunction with its Q3 earnings report, United Airlines raised its full-year earnings guidance. It now expects to produce adjusted EPS between $11.25 and $12.25 this year, compared to its previous forecast range of $10.50 to $12.

However, for the fourth quarter specifically, the airline expects PRASM to grow just 0% to 2% year over year, while nonfuel unit costs are on track to increase 3.5%. The net result is that even with a big decline in fuel costs -- United Airlines expects to pay between $1.99 and $2.09 per gallon this quarter, down from $2.30 per gallon a year ago -- profit growth will slow dramatically.

United's guidance calls for an adjusted pre-tax margin between 7% and 9% in the fourth quarter. That would be roughly in line with its Q4 2018 adjusted pre-tax margin of 7.8%.

Indeed, United reported adjusted EPS of $9.37 for the first three quarters of the year combined, so its full-year guidance implies adjusted EPS between $1.88 and $2.88 in the fourth quarter. For comparison, it earned $2.41 a year ago.

Is this just a blip?

As CEO Oscar Munoz proudly noted, United Airlines is on track to hit its 2020 EPS target of $11 to $13 a year early. That highlights the success of its turnaround efforts over the past few years.

Yet this accomplishment loses some of its luster if United's earnings growth is really about to stall out. Whereas strong nonfuel cost control and solid unit revenue growth drove the carrier's earnings growth in the first half of 2019, United Airlines is relying on an unsustainable level of year-over-year fuel-cost savings to drive its earnings growth in the second half of the year. Conditions aren't likely to be as favorable in 2020.

Furthermore, the return to service of the Boeing 737 MAX -- expected in early 2020 -- could lead to a capacity glut in the domestic market next year, putting further pressure on United's unit revenue. To keep its stock price moving higher, United Airlines will need to demonstrate that it can overcome these headwinds and continue growing its earnings in 2020 and beyond.