Several U.S. air carriers are revising their profit forecasts for the third quarter, citing escalating fuel costs and other increasing expenditures. These adjustments reflect the ongoing challenges faced by the airline industry as it grapples with a changing economic landscape.
American Airlines: American Airlines recently reported in a regulatory filing that it anticipates paying an average of $2.90 to $3.00 per gallon of jet fuel in the third quarter. The surge in fuel costs, coupled with a labor agreement with pilots resulting in a retroactive pay expense of approximately $230 million for the same period, has led the airline to revise its adjusted profit expectations. American Airlines now projects an adjusted profit ranging from approximately 20 cents to 30 cents per share in the third quarter, a significant decrease from its previous estimate of 85 cents to 95 cents per share.
Spirit Airlines: Spirit Airlines is also feeling the impact of rising expenses. The airline now expects its adjusted operating margins to fall between 14.5% and 15.5%, a more significant decline than its earlier forecast of 5.5% to 7.5%. To attract travelers, Spirit has resorted to offering discounts, which has affected its profitability. Additionally, the company has adjusted its third-quarter revenue expectations to a range of $1.24 billion to $1.25 billion, down from the previous estimate of $1.3 billion to $1.32 billion. Following this announcement, Spirit Airlines witnessed a 4.6% decline in its share price.
Spirit anticipates a period of “heightened promotional activity” with substantial discounts for travel bookings from the second half of the third quarter through the pre-Thanksgiving travel season.
Southwest Airlines and Alaska Airlines: Southwest Airlines and Alaska Airlines are not immune to the challenges posed by rising fuel costs. Both carriers have issued warnings about the increased fuel expenses they are experiencing in the current quarter. This situation is exacerbated by the consistent rise in crude oil prices, with West Texas Intermediate hovering around $88 a barrel and Brent crude, the global benchmark, nearing $92 a barrel.
These adjustments in profit forecasts underscore the volatility of the airline industry, which continues to grapple with economic fluctuations and supply chain disruptions. As the industry navigates these challenges, airlines are being forced to adapt their strategies and financial outlooks in order to remain resilient in an ever-changing market.
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