Airlines Brace for Surging Fuel Expenses as Southwest Airline Adjusts Revenue Forecast

Major U.S. airlines raise concerns over the surge in jet fuel prices, which adds to their costs during the bustling summer travel season.

According to Airlines for America, the average price of jet fuel in Chicago, Houston, Los Angeles, and New York stood at $3.18 per gallon on Tuesday after the Labor Day holiday weekend, marking an increase of over 30% compared to July 5.

Fuel and labor expenses constitute airlines’ biggest costs, and a sudden spike in fuel prices raises questions about how much of the burden can be shifted to customers this summer, especially considering the decline in fares from the previous year.

The escalated forecasted costs coincide with Southwest Airlines narrowing its unit revenue outlook for the current quarter. The Dallas-based airline predicts a 5% to 7% decline in unit revenue from the previous year, for the three months ending on September 30. In July, Southwest had expected only a 3% drop.

“While close-in leisure bookings for August 2023 were slightly lower than our expectations due to seasonal trends, overall leisure demand and yields remain robust,” the carrier stated in a filing with securities regulators.

Southwest anticipates that fuel prices this quarter will average between $2.70 and $2.80 per gallon, up from their previous estimate of $2.55 to $2.65. However, they maintain their forecast of a 12% increase in capacity compared to 2022.

Other airlines have also voiced concerns about rising costs impacting their financial results.

Alaska Airlines stated that elevated fuel prices will reduce its pretax margin during this quarter. Similarly, United Airlines maintained its revenue forecast but expects fuel prices to reach as high as $3.05 per gallon for the quarter, up from their previous estimate of no more than $2.80.

Airlines are scheduled to release their quarterly earnings reports in October.