Despite a boom in air travel this summer, major airlines still haven't been able to overcome some of the most pressing challenges they've faced in recent years. So look for them to recoup some of the surging costs in the form of higher airfares.
Three U.S. airlines on Wednesday warned of higher fuel costs in the third quarter due to a jump in crude prices, adding to pressures the industry faces from expensive labor contracts.
Shares of Southwest Airlines fell 4.1%, United Airlines was down 1.3% and Alaska Air Group edged lower about 1% before the bell.
U.S. airlines do not generally hedge against fuel costs, making them vulnerable to price swings. However, strong travel demand over the last two years has allowed them to mitigate such cost pressures.
But there are early signs that domestic travel demand is weakening, as inflationary pressures hurt consumers when carriers are grappling with costly contracts handed out to retain workers.
Since mid-July 2023, jet fuel prices have climbed over 20%, United said in a regulatory filing. The airline expects all-in fuel price per gallon to be between $2.95 and $3.05, up from its prior forecast of $2.50 to $2.80 per gallon.
It did not outline any impact to profit, but the company is scheduled to speak at a conference later in the day.
Southwest Airlines, the largest U.S. domestic carrier, said it expects revenue per available seat mile – a proxy for pricing power – to fall 5% to 7% in the current quarter. It had earlier forecast a 3% to 7% fall.
Alaska Air, meanwhile, expects an adjusted pre-tax margin of 10% to 12% in the third quarter, lower than its prior expectation of 14% to 16%.
The Washington State-based company also revised its estimate for revenue growth in the third quarter to 1% to 2%, from flat to 3%.
The forecasts come at a time when changing travel patterns due to shifting post-pandemic consumer habits have also increased airlines’ operational costs.
American Airlines and Delta Air Lines were also down about 1% each, premarket.
(Reporting by Mehr Bedi and Abhijith Ganapavaram in Bengaluru; Editing by Pooja Desai)
Photo credit: Southwest Airlines has issued warnings about a surge in fuel prices Tomás Del Coro / Wikimedia Commons