American Airlines has scaled down its 2026 profit forecast, due to the expense of jet fuel hastily increasing. The airline forecasted its profit by assuming the price of fuel, which has revealed to be incorrect twice within a timeframe of a few months.
Fuel expenses
The recent rise of fuel costs is down to geopolitical tension between the U.S and Iran. Fighting disrupted the Strait of Hormuz, a vital trade point for global oil trade, causing major oil supply disruption. In turn, oil prices were raised immediately by markets that priced in fear of supply risk. In recent times, oil prices have reached the cost of $100 for the first time since May.
According to Reuters, the combined fuel expenses at Delta Airlines (DL), United Airlines (UA), American, Southwest Airlines (AS) and Alaska Air (WN) were nearly $8 billion higher than the period prior in contrast to the increase of about $1.2 billion from this years first quarter from the same timeframe a year before.
The Effect on American Airlines
American Airlines Group’s earning release reports, in Q1, jet fuel rose to $4.69 per gallon, increasing $341 million in costs compared to a year before. In Q2, jet fuel averaged $4.05 per gallon, increasing $2.2 billion compared to a year before. In Q3, jet fuel is expected at about $3.75 per gallon, increasing another $1.7 billion. The full year estimate reveals it will cost about $6 billion extra than the original budget.
American Airlines’ Earnings Per Share for the most recent quarters of the year, reveal in Q3, American Airlines expected a loss of $0.70 to $0.10 below the $0.28 Wall Street predicted. However, revenue growth is still forecast to surpass predicted estimations.
Chief Financial Officer (CFO) Devon May told Reuters, that the airline had expected stronger revenue to counteract the higher fuel costs presented in the second half.
Despite the losses, demand for flights has been flourishing with a 5% increase in capacity e.g. more flights and seats. Executives at American have defended this, explaining that the demand is worth chasing whilst fuel costs decrease their margins.
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