Southwest, United sound alarm over rising kerosene costs
Southwest Airlines on Wednesday pointed to weaker holiday bookings in August and along with two other US carriers warned of higher fuel costs in the third quarter due to a rise in crude oil prices.
The largest US domestic airline said August bookings were at the lower end of expectations, partly due to seasonal trends, but insisted leisure demand and earnings overall remain healthy.
Southwest shares fell 4% premarket before reversing some losses to end down 2.6% at $29.97.
The forecast comes at a time when domestic travel demand is showing signs of slowing, with inflationary pressures hurting consumers even as airlines are giving out costly contracts to retain workers.
United Airlines and Alaska Air Group also warned of higher fuel costs in the current quarter as crude oil prices rose for a third straight month in August and there were signs of a tightening in supply.
In a regulatory filing, United said jet fuel prices have risen more than 20% since mid-July.
The airline also said it has no immediate plans to move its headquarters from Chicago to Denver after purchasing 113 acres of land there. Chief Financial Officer Gerald Laderman told the TD Cowen Transportation Conference that the first task is to expand the flight training center in Denver.
Southwest said it still forecasts “solid earnings (in the third quarter)” but trimmed its expectations for revenue per available seat-mile — an indicator of pricing power — to a 5% to 7% decline, compared to a 3% to 7% decline Earlier Predicted % Decline.
Alaska Air expects a quarterly adjusted pretax margin of 10% to 12%, down from a prior expectation of 14% to 16%.
US airlines generally do not hedge against fuel costs and are therefore vulnerable to price fluctuations.
“The relatively rapid increase in fuel prices has given the industry little time to react with tariffs,” Stephen Trent, an analyst at Citi Research, said in a note.
