American Joins Airlines Buckling Up for Soaring Fuel Costs

Pain at the pump has hit the tarmac, with American Airlines slashing its forecast amid high fuel costs. The carrier’s new prediction sees it facing a possible loss for the year, with its outlook ranging from a 40-cent-per-share loss to a $1.10 profit. Before the Iran war, American had predicted at least $1.70. 

The airline expects to spend an extra $4 billion on fuel this year. Fuel typically accounts for a quarter of carriers’ expenses, but that proportion’s likely to spike dramatically after prices nearly doubled. As the conflict in the Middle East continues, airlines are preparing for the equivalent of a long-haul red-eye flight to cope with fuel costs. 

Ain’t Kerosene Nothin’ Yet

Anyone who’s price-shopped for flights recently knows that American isn’t the only carrier grappling with high fuel costs. United on Wednesday cut its annual forecast but still expects at least a $7 per-share profit even if fuel prices continue to climb. Delta, which expects to spend an additional $2 billion on fuel this year, and Southwest, which has enough problems of its own, didn’t update their full-year forecasts. 

Airlines are looking to recoup some of the money they’re literally burning (as fuel):

• United is slashing its scheduled flights by about 5%, and Germany’s Lufthansa said this week it’ll nix 20,000 flights to save on fuel over the next six months. Most airlines are also passing fuel costs down to customers, with all the big US carriers charging more for checked bags. United may raise ticket prices as much as 20%, and Alaska said flights in core markets have already spiked that much. 
• American and Alaska are considering an expanded team-up, Bloomberg reported Wednesday. The duo could coordinate flight scheduling and pricing, then split the revenue. The partnership would give American more wings on the West Coast and shore up its position against more profitable rivals.

Piña Colada Premium: Americans aren’t ready to give up their tropical summer vacays. Demand has remained resilient so far, but with many travelers booking a few months out, airlines could see tighter margins than they expected on summer flights booked before the Iran war.