In early trading on Wednesday, American Airlines (AAL) and Spirit Airlines (SAVE) witnessed a dip in their respective stock values following a revision of their third-quarter outlooks due to escalating fuel expenses and recent drops in airline ticket prices. American Airlines experienced a decline of up to 4%, while Spirit Airlines saw a drop of approximately 2% during the morning session.
Spirit Airlines detailed in their filing that there has been a surge in promotional activities accompanied by substantial discounts for travel bookings slated for the latter half of the third quarter through to the pre-Thanksgiving travel period. Consequently, Spirit now anticipates third-quarter revenue to range between $1.24 billion and $1.25 billion, as compared to earlier estimates of $1.3 billion to $1.32 billion.
The Spirit Airlines also highlighted the surge in fuel costs, aligning with similar cautions voiced by various domestic and international carriers, including United Airlines (UAL), Southwest (LUV), and Alaska Air (ALK). American Airlines echoed these concerns in a separate filing, now projecting adjusted earnings to fall between 20 and 30 cents per share in the third quarter, in contrast to initial expectations of 85 to 95 cents. Furthermore, American’s adjusted operating margin guidance was adjusted to a range of 4% to 5%, down from previous estimates of 8% to 10%.
The impact of the recent surge in oil prices has been acutely felt by these airlines, with the underlying commodity reaching its highest levels in 2023. Crude oil prices have risen by approximately 30% since late June, with West Texas Intermediate (CL=F) currently holding steady at $89 per barrel and Brent crude futures (BZ=F) hovering around $92 per barrel. This surge in energy costs has been a pivotal factor in the recent escalation of consumer prices over the past month. The duration of these elevated oil prices and the persistence of pandemic-induced shifts in consumer behavior remain uncertain.
In light of these circumstances, airlines such as American and Spirit are adapting to this new reality, striving to maintain competitiveness despite the challenge of heightened fuel expenses. The industry grapples with a fresh array of obstacles as fuel prices continue their ascent while airline ticket prices experience a decline. The adjustments made by American and Spirit to their third-quarter outlooks underscore the profound impact of jet fuel costs on the performance of airlines in the current economic landscape.
Source: Yahoo Finance
