American Airlines Announces Profit Hit From Higher Labor, Fuel Costs, Causing Airline Stocks To Sink

With persistently high labor and fuel costs continuing to cause a drag on the company's profit, American Airlines Group Inc forecast a first-quarter loss that fell well below market expectations on Wednesday.

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As a result of its bleak outlook, Delta Airlines, the first of the major U.S. airlines to begin the earnings season on Thursday, closed down 2.10% on Thursday. Southwest Airlines, the second of the major U.S. airlines, fell 1.41%.

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It has been relatively easy for airlines to mitigate rising costs so far due to higher fares amid increasing global travel, but concerns about the sustainability of consumer demand have gained ground in recent times owing to a high borrowing cost, inflation, and a reduction in jobs.

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There had been a report in January that America had raised its fuel prices by nearly 70% in the last few months. The airline industry has managed to survive the broader economic slowdown in the United States, which has been caused by shortages of spare parts and aircraft, as well as constrained airline capacity resulting from a shortage of aircraft and crew.

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It has stated that it expects to total revenue per available seat mile over the first quarter of the year to be up about 25.5% compared to a year ago, which is an indication of pricing power on the part of American Airlines.

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According to Refinitiv data, however, the company forecasts that it will earn a profit per share of between 1 cent and 5 cents on a quarterly basis, compared to analysts' predictions of 6 cents and Refinitiv's former forecast of near break-even.

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Despite the fact that American's 1Q23 updated guidance mostly stayed within its original range provided in January, we had expected American to come in near the better end, similar to JetBlue's revised guidance update which was released in mid-March. Savanthi Syth, an analyst at Raymond James, said that the revised guidance provided by American was mostly within its original range.

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There was a slight reduction in the carrier's forecast despite the fact that it reduced its guidance for the first quarter of 2018, from its previous prediction of $3.33 to $3.38 per gallon to $3.27 to $3.32 per gallon.

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