Rising Fuel Costs Impact U.S. Airlines' Third-Quarter Forecasts

On Wednesday, three American airlines reduced their third-quarter margin forecasts due to increased fuel costs, causing a drop in the shares of other U.S. airlines due to concerns about escalating expenses. The airlines have cautioned about the impact of soaring fuel costs in the current quarter, as oil prices have been driven up by extended production cuts from Saudi Arabia and Russia. Analysts from Bank of America predict that these supply cuts could push Brent futures above $100 per barrel by year’s end.


Frontier, a low-cost carrier, saw its shares drop by 9% after it reported an unexpected significant change in booking trajectory and a higher volume of operational cancellations than previously anticipated. The company stated in a regulatory filing that sales have been trending below historical seasonality patterns in recent weeks.


This forecast is set against early indications of weakening domestic travel demand, with inflationary pressures impacting consumers and airlines issuing expensive contracts to retain employees. American Airlines has revised its profit expectations for the current quarter to 20-30 cents per share, down from the previous forecast of 85-95 cents per share, resulting in a 4% drop in its shares. The airline also adjusted its forecast for total revenue per available seat mile, an indicator of pricing power. It is now predicted to decrease by 5.5% to 6.5%, compared to the previous forecast of a 4.5% to 6.5% drop. Its shares declined by 1.71%.

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Raymond James analyst Savanthi Syth commented that revisions in fuel guidance are putting pressure on implied EPS guides, while revenue updates are more varied, reflecting softness in the domestic market. Shares of larger U.S. carriers such as Delta Air Lines, Southwest Airlines, and United Airlines also experienced a roughly 2% decline each.

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