Michelle ThompsonAmerican Airlines has revealed that escalating expenses, particularly those related to fuel, will negatively impact its forthcoming profits. The carrier, headquartered in Fort Worth, disclosed in a regulatory filing that its adjusted earnings per share for the third quarter are now expected to range from 20 cents to 30 cents. This represents a significant reduction from the earlier forecast of 95 cents per share.
The airline cited a substantial increase in fuel prices, which have risen considerably since its initial third-quarter guidance issued in July. American Airlines is currently paying approximately $3 per gallon for jet fuel. The Labor Department’s Consumer Price Index report from Wednesday showed a 9.1% surge in oil prices last month.
Another contributing factor to the diminished profit is the newly negotiated pilot contract. Earlier in the summer, the airline finalized a new agreement with its pilots, entailing approximately $9 billion in additional compensation and benefits.
Additionally, on the same day, discount carrier Spirit revised its third-quarter revenue down by 5% from its previous projection. This downward adjustment was attributed to rising fuel costs and increased promotional activities involving substantial discounts on travel booked in the weeks leading up to Thanksgiving weekend.
As a result of these developments, shares of both American Airlines (AAL) and Spirit (SAVE) experienced a decline of approximately 3% in premarket trading.
The International Air Transport Association (IATA) recently predicted that global airlines are poised to generate nearly $10 billion in profits this year as they rebound from the impacts of the pandemic. This forecast, made in June, marks a substantial increase from their earlier 2023 profit projection for the global airline industry, even in the face of an impending economic slowdown.
According to the updated projection, airlines are expected to achieve a net profit of $9.8 billion in 2023, a significant rise from the December estimate of $4.7 billion.
Scott Kirby, the CEO of United Airlines, has previously shared his optimism about the airline’s return to profitability levels seen in 2019 within the current year. It’s worth noting that the airline has bolstered its cash reserves to better weather potential economic challenges in the short term.
In Kirby’s words, “We’ve significantly enhanced both our relative and absolute profit margins, and we’re now actively reducing our debt. This positions us well to navigate through any potential short-term economic downturn.”
