Airline Stocks Face Concerns Over Rising Fuel Costs

As the third quarter continues to show strong performance for the airline industry, investors are growing concerned about the impact of higher fuel costs. This worry comes as the unofficial end of the peak summer travel season, Labor Day, approaches.

Leading the decline in airline stocks is Southwest Airlines (LUV), which saw a 4.3% drop after revising its outlook for the third quarter. The low-cost carrier now expects a year-over-year decline in revenue per available seat mile of between 5% and 7%, compared to the previous range of 3% to 7% lower.

Southwest Airlines attributed this revision to an increase in fuel costs. The airline now anticipates fuel costs per gallon to be between $2.70 and $2.80, up from the earlier estimate of $2.55 to $2.65. Despite this setback, Southwest Airlines reported a record-breaking revenue performance over the Labor Day weekend and remains optimistic about its third quarter operating revenue.

United Airlines (UAL) also expressed concern over rising fuel costs, noting a more than 20% increase in jet fuel prices since mid-July. The airline adjusted its fuel price estimates to a range of $2.95 to $3.05 per gallon, up from the previous range of $2.50 to $2.80.

Despite the impact of rising fuel costs, United Airlines maintained its revenue and cost guidance from July, emphasizing a strong performance in the current quarter. Nevertheless, the stock experienced a 1.4% decline in premarket trading.

Alaska Air acknowledged that higher fuel costs would negatively affect its margins, revising its pretax margin expectations to a range of 10% to 12%, down from 14% to 16%. The airline also tightened its revenue guidance, now projecting a year-over-year increase of 1% to 2% compared to the previous range of 0% to 3%. Alaska Air cited canceled flights due to the wildfires in Maui as a contributing factor to the adjustment.

The impact of these warnings was felt across the airline industry, with Delta Air Lines (DAL) experiencing a 1.2% decline and American Airlines (AAL) seeing a 0.8% drop. These airlines have yet to update their third quarter guidance.

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