U.S. airlines flag high fuel costs, Southwest’s August bookings disappoint

By Mehr Bedi

(Reuters) -Southwest Airlines on Wednesday flagged softer August leisure bookings and joined two other U.S. airlines in warning of higher fuel costs in the third quarter due to a jump in crude prices.

The largest U.S. domestic carrier said August bookings were at the lower end of its expectations, in part due to seasonal trends, but maintained that overall leisure demand and yields remain healthy.

Shares of Southwest closed 2.6% lower at $29.97.

The forecast comes as early signs emerge of domestic travel demand weakening, with inflationary pressures hurting consumers even as carriers hand 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, amid signs of tightening supply.

In a regulatory filing, United said jet fuel prices have climbed over 20% since mid-July.

The carrier also said it had no imminent plans to move its headquarters to Denver from Chicago after buying 113 acres of land there. Finance Chief Gerald Laderman at the TD Cowen Transportation Conference said the first order of business is the expansion of the flight training center in Denver.

Southwest said it continues to forecast a “solid (third-quarter) profit”, but trimmed its expectations for revenue per available seat mile – a proxy for pricing power – to a 5% to 7% fall, compared with a 3% to 7% fall forecast earlier.

Alaska Air expects a quarterly adjusted pre-tax margin of 10% to 12%, lower than its prior expectation of 14% to 16%.

U.S. airlines do not generally hedge against fuel costs, making them vulnerable to price swings.

“The relatively quick up move in fuel has given the industry little time to respond through fares,” Citi Research analyst Stephen Trent said in a note.

(Reporting by Mehr Bedi and Abhijith Ganapavaram in Bengaluru, Additional reporting by Aishwarya Jain; Editing by Pooja Desai)

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