CHICAGO (Reuters) -United Airlines forecast lower-than-expected profit for the current quarter on Tuesday and warned of downside risks to its full-year outlook if the U.S. economy slips into a recession.

President Donald Trump's trade war has increased the odds of an economic recession, hitting business and consumer confidence and rattling global markets. As travel is a discretionary item for many consumers and businesses, growing economic risks have clouded the airline industry's outlook and sparked a selloff in shares.

United said its financial forecast is dependent on the macro environment, which, it added, is "impossible to predict this year with any degree of confidence."

The airline reported that its forward bookings over the last two weeks have remained stable, with premium cabins up 17% and international up 5% year-over-year. The comments helped drive United shares up 6.7% in after-hours trading.

"The company's expectation has become bimodal - either the U.S. economy will remain weaker but stable, or the U.S. may enter into a recession," it said.

United estimates an economic recession would lead to a 5-percentage-point drop in its revenue, translating into a full-year adjusted profit of $7 a share to $9 a share.

In January, it had forecast an adjusted profit of $11.50 to $13.50 per share for 2025. The company said it still expects to hit that estimate if the demand environment remains stable and fuel prices stay around their current levels.

The Chicago-based airline expects an adjusted profit in the range of $3.25 a share to $4.25 per share in the quarter through June. The midpoint of the forecast is $3.75 per share, compared with analysts' average estimate of $3.93, according to LSEG data.

The United forecast comes days after Delta Air Lines and Frontier Airlines withdrew their full-year forecasts, saying travel demand has "largely stalled" amid mounting economic uncertainty.

Weakening consumer demand has also undermined the industry's pricing power. Airline fares fell 5.3% in March from a month earlier, their steepest monthly decline since September 2021, according to data from the U.S. Labor Department.

United shares are down 31% this year and have declined 43% from their 52-week high. In a sign of bearish investor sentiment, short interest in the company's shares has risen by 45% since mid-February.

CAPACITY CUTS

With demand slowing, U.S. airlines have started cutting flights to avoid lowering fares and to protect margins.

United said it would slash its planned domestic capacity, or the seats available on its flights, by 4 percentage points starting in the September quarter. It is also reducing flights on off-peak demand days.

The company said it would stick with its "prudent" approach on capacity in the December quarter as well. Last week, rival Delta said its capacity growth in the second half of the year would be flat from a year ago.

United's first-quarter profit came in at 91 cents a share, topping analysts' expectations of 76 cents a share. It was its first March quarter profit in 5 years.

The company will discuss its financial results on a call with analysts and investors on Wednesday morning.

(Reporting by Rajesh Kumar Singh; Editing by Bill Berkrot and Sandra Maler)