United, American and Southwest warn they will cull schedules if fuel costs remain elevated.
With the price of jet fuel lingering near all-time highs, airlines and investors are questioning if capacity plans for the critical winter months can hold.
Scheduled capacity across the industry is planned to be 3% higher year on year in the fourth quarter, as measured by available seat miles, but executives warn that could easily change.
“There are times where you’re just going to want to pull a little capacity out when we see a rise in fuel like we’re seeing right now,” American Airlines chief financial officer Devon May said at an investment conference hosted by Morgan Stanley on 16 September. “And we’ll go ahead and touch up December because of that.”
It’s a significant step for American, which is playing catch up to the profitability of main-line peers United Airlines and Delta Air Lines, and plans the most capacity growth – up 10% year on year in the fourth quarter – of any domestic US carrier.
At the same conference, United warned it’s likely to do the same if the fuel curve does not flatten.
“There’s some marginal routes that don’t make sense in a higher fuel environment, so we cut them,” said chief financial officer Mike Leskinen. “And you should see us continue to behave that way.”
Unlike American, which is vying for market share gains, United is focused on increasing profit margins, Leskinen says.
Southwest echoed the sentiments.
“If fuel is higher for longer, I think that’s a natural response. .. [to] trim some of that capacity up,” says chief financial officer Tom Doxey.
US airlines have made decent progress recapturing some of their additional fuel costs, with airfares up 26% year on year in June, according to the US Department of Labor. That number only keeps climbing.
But executives say making up the difference takes time.
“We’ve got about 35% of our tickets booked already in the fourth quarter, so you can’t go back and reprice those tickets,” says Leskinen. “But there is nothing that is changing that causes us to not be able to pass through 100% of fuel with that lag.”
A massive focus on premium seating has helped United and Delta keep ahead of some elevated costs. American is seeking to rapidly do the same, overhauling its cabins to add more upgraded seats and taking delivery of premium-seat-rich jets like Airbus A321XLRs for lucrative transatlantic flying.
Jet fuel hit a record high in April as the US and Iran exchanged strikes. As the conflict drags on, oil prices have continued to rise, settling 7% below the spring record as of 18 September, with political signals increasingly hard to read.
“We simply don’t know how to model the endgame,” JPMorgan commodities analysts wrote in a note to clients on 17 September.
“With no clear signals from either the US or Iran that they are prepared to de-escalate … the assumption that the disruption is temporary is becoming increasingly difficult to sustain,” they say.
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