Rising Expenses Pose Profits Erosion Threat: Multiple Organizations Caution on Escalating Costs

An American Airlines 787 is loaded with cargo at Philadelphia International Airport.

Leslie Josephs/CNBC

Numerous companies are cautioning that soaring fuel costs and increased employee wages will impact their profits this quarter.

Companies spanning from aerospace manufacturers to package delivery leader UPS are grappling with significant labor agreements. Furthermore, unions representing workers from the automotive industry to Hollywood are advocating for improved compensation. Airlines, as their primary expenses center around jet fuel and labor, are facing substantial challenges.

Delta Air Lines recently revised its adjusted earnings forecast for the third quarter to a range of $1.85 to $2.05 per share, down from the previous estimate of $2.20 to $2.50. The airline cites unexpected increases in fuel and maintenance costs as the reasons for this downward revision.

According to Airlines for America, a trade association, the average price of U.S. jet fuel at major airports has surged by 38% to $3.42 per gallon compared to two months ago.

Just yesterday, American Airlines adjusted its earnings forecast following similar revisions by Alaska Airlines and Southwest Airlines. American Airlines now expects adjusted earnings per share to range between 20 cents and 30 cents for the third quarter, as opposed to the previous guidance of up to 95 cents per share, due to increased fuel costs and a new pilot labor agreement.

A significant expense related to the new pilot contract, which includes immediate 21% salary raises and an overall compensation increase of over 46% throughout the four-year agreement, including 401(k) contributions, is expected to reach $230 million, according to American Airlines.

Labor unions in various industries, from Detroit to Hollywood, have been actively pursuing higher salaries, improved benefits, and better schedules through new contracts. In July, UPS and the Teamsters union reached a new labor agreement covering approximately 340,000 employees at the package carrier. The deal includes salary increases for both full-time and part-time workers and narrowly avoided a potential strike.

The UPS labor agreement has been ratified by workers. As per the five-year contract, a driver could earn up to $170,000 in compensation including benefits, according to the company.

This week, UPS highlighted the costs associated with the new labor deal and projected an expense increase of 3.3% compound annual growth rate over the next five years.

During an investor call, Brian Newman, the CFO of UPS, stated that the back half of 2023 will see an additional $500 million cost related to the labor agreement, exceeding their original forecast.

As of midday Thursday, the United Auto Workers and Detroit automakers were still far apart in their negotiations for new labor agreements. This raises the likelihood of strategic strikes at the companies if an agreement is not reached by the 11:59 p.m. ET deadline on Thursday, as stated by UAW President Shawn Fain on Wednesday night. The union is demanding hourly pay increases of more than 30%, a reduced 32-hour workweek, and other improvements.

Other unions are also advocating for higher compensation. The strikes by Hollywood writers and actors began in May and mid-July respectively, with members demanding better pay to reflect the changes in the entertainment-streaming era.

American Airlines has offered flight attendants an 11% pay increase at the start of a new contract and subsequent 2% raises. However, the Association of Professional Flight Attendants is pushing for 35% increases at the beginning of a new agreement, followed by 6% annual raises.

Unions argue that workers did not receive raises during a period of high inflation in recent years, as talks were disrupted by the Covid pandemic.

While strong travel demand has helped major airlines offset their increased costs, some carriers are beginning to experience a slowdown in sales just as the travel season slows. Yesterday, Spirit Airlines


Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
DMCA compliant image

Leave a Comment