American Airlines Expects Lower Profits Due to Rising Costs

New York – CNN

American Airlines said that rising costs, including fuel, will dent its upcoming profits.

Lower Earnings Forecast

The Forth Worth-based carrier said in a regulatory filing that its adjusted earnings per share will now be between 20 cents to 30 cents in the third quarter, which is drastically smaller than the 95 cents a share the airline was previously forecasting.

Rising Fuel Prices

American said that fuel prices have “increased considerably” since July, when it issued its initial third-quarter guidance. The airline is paying about $3 per gallon for jet fuel. Oil prices surged 9.1% last month, according to the Labor Department’s Consumer Price Index report that came out Wednesday.

New Pilot Contract

Another reason for the smaller profit is the new pilot contract. Earlier this summer, the airline inked a new deal with its pilots with about $9 billion dollars in incremental compensation and benefits.

Impact on Other Airlines

Also on Wednesday, discount carrier Spirit cut third quarter revenue by 5% from its previous forecast. It blamed rising fuel prices and “heightened promotional activity with steep discounting for travel booked” for the weeks leading into Thanksgiving weekend for the adjusted guidance.

Stock Market Reaction

Shares of American (AAL) and Spirit (SAVE) fell about 3% in premarket trading.

Positive Outlook for Global Airlines

Global airlines should make nearly $10 billion in profit this year as business bounces back from the pandemic, according to a recent forecast from the International Air Transport Association. The organization said in June that it more than doubled its 2023 profit forecast for the global airline industry despite a looming economic downturn.

Airlines are expected to make $9.8 billion in net profit in 2023, up from a December forecast of $4.7 billion.

United Airlines’ CEO Optimistic

United Airlines CEO Scott Kirby previously told CNN that he expected the carrier to return to 2019 levels of profitability this year. The airline was holding a lot more cash on its balance sheet, however, to withstand a potential economic downturn in the near term.

“We’ve dramatically improved our relative and absolute profit margins and we’re starting to pay down debt and that gives us the firepower to really ride through a short term recession,” Kirby said.