Airline stocks are experiencing a decline as major carriers warn of higher fuel costs heading into the third quarter. While the industry has been performing exceptionally well, concerns are rising, especially with Labor Day marking the end of the peak summer travel season.
Southwest Airlines (LUV) saw the sharpest drop, tumbling 4.3%, after revising its outlook for the third quarter. The low-cost carrier expects a decline in revenue per available seat mile, ranging from 5% to 7% compared to the previous year.
The airline attributed this revision to an increase in fuel costs per gallon. Earlier estimates predicted prices between $2.55 and $2.65, but now Southwest predicts a range of $2.70 to $2.80. Despite this setback, Southwest announced that the Labor Day holiday weekend saw record revenue performance and solid travel demand, leading to expectations of a record-breaking third quarter in terms of operating revenue.
United Airlines (UAL) followed suit, similarly warning investors about rising fuel costs. Jet fuel prices have surged by over 20% since mid-July, prompting United to adjust its estimates to a range of $2.95 to $3.05 per gallon, up from $2.50 to $2.80.
However, United assured investors that it would stick to its previously issued revenue and cost guidance from July’s second-quarter earnings report. The airline expressed confidence in its strong performance during the current quarter, despite a drop of 1.4% in premarket trading.
Alaska Air also highlighted the impact of higher fuel costs on profit margins. The company revised its pretax margin expectations from 14%-16% to 10%-12%. Additionally, Alaska Air tightened its revenue guidance, forecasting a year-over-year increase of 1%-2% compared to an earlier range of 0%-3%. The wildfires in Maui, leading to canceled flights, contributed to this adjustment.
The market sentiment towards airline stocks was affected by these warnings. Delta Air Lines (DAL) experienced a 1.2% decline, while American Airlines (AAL) saw a 0.8% drop. So far, neither airline has provided updates on their third quarter guidance.