American Air Cuts Profit Outlook on Higher Labor, Fuel Costs

American Airlines Group Inc. slashed its third-quarter earnings outlook on a jump in jet fuel prices and payment of roughly $230 million in retroactive salary under a new contract for its pilots. Meanwhile, discount carriers raised red flags about the health of the domestic market.

(Bloomberg) — American Airlines Group Inc. slashed its third-quarter earnings outlook on a jump in jet fuel prices and payment of roughly $230 million in retroactive salary under a new contract for its pilots. Meanwhile, discount carriers raised red flags about the health of the domestic market. 

Spirit Airlines Inc. cited “steep” discounts for travel ahead of the Thanksgiving holiday, while Frontier Air Group Holdings Inc. saw a recent “significant unexpected change” in bookings, and sales below historic patterns. Both carriers also said the 34% surge in fuel — one of the industry’s largest costs — would hurt their quarterly results.

Shares of American dropped 5% at 9:32 a.m. in New York, while Spirit fell 3.6% and Frontier was down 7.6%. The news also weighed on United Airlines Holdings Inc. and Delta Air Lines Inc., which each fell more than 2%.

“Unsurprisingly, fuel guidance revisions are placing pressure on implied EPS guides while revenue updates are more mixed, reiterating varying degrees of softness in the domestic market,” Savanthi Syth, a Raymond James analyst, wrote in a note. “Notably, business travel recovery trends appear unchanged so far.”

Read more: Southwest, United Airlines Warn of Higher Jet Fuel Prices

American’s adjusted earnings per share is now seen at 20 cents to 30 cents, down from an earlier outlook for as much as 95 cents, the carrier said Wednesday in a regulatory filing. The airline halved its adjusted operating margin outlook to as much as 5%. 

Higher fuel prices and the decline in fares has raised uncertainty about the strength of the domestic market, particularly as leisure travelers shifted in large numbers to European trips over the summer.

Some industry executives have said they expect a renewed push after the recent Labor Day holiday to get more workers back in the office full time. This may boost the volume of corporate travel, which remains below 2019 levels for some carriers. 

American also said unit revenue, a measure of demand and fares, would drop at least 5.5% from a year ago, compared to its earlier outlook for a decline of 4.5% to 6.5%. The company expects fuel prices will be as much as $3 a gallon, compared to $2.65 earlier. 

Spirit reduced its outlook for third-quarter revenue and slashed its adjusted operating margin guidance to as much as negative 15.5% from up to a 7.5% drop previously. Frontier said its adjusted pretax margin would fall 4% to 7%, compared to its earlier outlook for an increase of as much as 7% year over year. 

Southwest Airlines Co. said last week that unit revenue would fall more than it originally expected for the quarter. Higher fuel costs prompted Alaska Air Group Inc. to cut its outlook for adjusted pre-tax margin, and the carrier also tightened its outlook for total revenue. United Airlines Holdings Inc. has maintained its outlook for non-fuel unit costs, capacity and operating revenue despite the fuel price increase.

(Updates throughout. An earlier version corrected American Airline’s unit revenue losses)

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