Three US carriers warned about an unexpected surge this quarter in the price of jet fuel, one of the industry’s highest expenses, adding to lingering concerns about demand in domestic markets, lower fares and rising labor costs.
(Bloomberg) — Three US carriers warned about an unexpected surge this quarter in the price of jet fuel, one of the industry’s highest expenses, adding to lingering concerns about demand in domestic markets, lower fares and rising labor costs.
Southwest Airlines Co. also said that unit revenue, a measure of demand and fares, would fall 5% to 7% from a year earlier, compared with a prior outlook for a drop of 3% to 7%, according to a regulatory filing by the carrier Wednesday. The shares fell 4.3% before the start of regular trading in New York.
Industry analysts have been forecasting that US carriers would likely soon update existing financial guidance for the quarter, largely because of lower domestic fares and fuel prices that have climbed as much as 27% since the start of the three-month period. Airlines have faced an increasingly uncertain domestic environment, caused in part by a surprisingly strong shift to international travel over the summer.
Fuel and labor historically have been the two largest expenses for airlines. United shares fell 1.4% in premarket trading, while Alaska slipped less than 1%.
Leisure bookings shortly before travel during August were on the low end of Southwest’s expectations, the airline said, but demand over the Labor Day holiday was strong. About 1,400 flight cancellations related to the Maui wild fires and hurricanes won’t have a material impact on financial results for the quarter, it said.
Southwest didn’t change its outlook for a muted recovery in business demand. The carrier earlier said that starting in January, it will reduce short-haul flights, trim flying early in the day and late at night and shift more capacity away from Monday and Tuesday to emphasize leisure demand. Southwest’s outlook for fuel rose to as much as $2.80 a gallon from a high of $2.65 earlier.
United Airlines Holdings Inc. maintained its outlook for non-fuel unit costs, capacity and operating revenue despite a more than 20% jump in fuel prices since mid-July. It now expects to pay an average $2.95 to $3.05 a gallon for fuel, up from an earlier outlook for as much as $2.80.
The higher fuel prices prompted Alaska Air Group Inc. to cut its outlook for adjusted pre-tax margin in the quarter to 10% to 12%, compared with an earlier expectation of as much as 16%. The carrier tightened its outlook for total revenue, which it sees increasing 1% to 2% from the same period in 2022, compared with an earlier outlook for flat to up 3%. Alaska sees fuel averaging as much as $3.25 a gallon for fuel, up from $2.70 to $2.80 previously.
(Updates with comments from Southwest filing in fifth paragraph)
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