The shares of major US airlines took a significant hit on Wednesday, prompted by United Airlines’ underwhelming fourth-quarter forecast issued the previous day. Concerns are mounting over the escalating costs that are impacting carriers’ profit potential. United Airlines witnessed an 8% plunge in its stock price, plummeting to levels below its one-year low. Similarly, three of its counterparts – Delta Air Lines, American Airlines, and Southwest Airlines – experienced declines of up to 4%.
United Airlines had projected an adjusted profit for the current quarter in the range of $1.50 to $1.80 per share. This projection fell short of the average expectations of analysts, which stood at $2.06, according to data from the London Stock Exchange Group (LSEG). The airline attributed this outcome, in part, to the increased expenses associated with higher jet fuel prices and challenges in labor force and flight attendant agreements.
Industry-wide profits have been under pressure due to the surge in crude oil prices during the July-September quarter. Last week, Delta revised its annual profit estimate downward to a range of $6 to $6.25 per share, from the previously stated $6 to $7 per share. Some analysts speculate that United’s declining performance may be linked to the suspension of flights to Israel, which has reduced capacity and driven up costs.
US airlines shares have witnessed a bearish trend this year, with the stock prices of United and Delta notably trailing below the S&P 500’s multiple of 19.7. Analysts contend that the airline sector’s dwindling economic gains can be attributed to the rising energy expenses and signs of a slowdown in domestic travel.
During an earnings call on Wednesday, United Airlines Chief Financial Officer Michael Leskinen acknowledged, “We are facing sizable headwinds with labor and the expectation of a new flight attendant agreement, along with continued higher maintenance expenses.” Deutsche Bank analysts echoed a similar sentiment, noting in a report that the surge in energy costs and the Israel-Hamas conflict were unforeseen factors not accounted for in earnings projections made three months ago.
Despite the recent downturn in airline sector profits, global investors remain optimistic about the industry’s long-term prospects. They place their confidence in the belief that a growing economy and advancing technology will ultimately propel the sustained success of these carriers.