By Rajesh Kumar Singh and Sanjana Shivdas
Oct 21 (Reuters) – U.S. carriers American Airlines AAL.O and Southwest Airlines LUV.N on Thursday warned mounting inflationary pressures could overshadow strong holiday demand and delay a complete return to profit.
Both the Texas-based carriers posted a smaller-than-expected loss in the third quarter, but said rising fuel prices as well as higher labor costs are hurting earnings in the quarter through December.
Oil prices have surged to multi-year highs this year, threatening a fragile recovery in the airline industry. American, for example, spent nearly 70% more on jet fuel in the latest quarter than a year ago. Southwest’s fuel costs surged by 154% from a year ago.
Higher fuel costs tend to lead to result in less flown capacity and higher fares. Rival Delta Air Lines Inc DAL.N, which expects fuel prices to result in a pre-tax loss in the current quarter, has suggested that it might pass along the increased costs to consumers.
Carriers are also trying to hire workers amid a pick-up in travel demand.
Southwest said it was aggressively hiring, with the aim of having about 5,000 new employees by the end of this year.
The company has had to cancel flights en masse partly due to staff shortages, having earlier added more flights to its schedule to capitalize on a hoped-for recovery in air travel as pandemic restrictions eased.
Such cancellations earlier this month are expected to result in a $75-million hit to the carrier’s October revenue.
“Third quarter 2021 was a challenge for us, operationally,” Chief Executive Gary Kelly said in a statement.
“We have reined in our capacity plans to adjust to the current staffing environment.”
Southwest expects its capacity in the December quarter to remain below the corresponding period in 2019. In the first quarter of 2022, its capacity is estimated to be about 6% lower than the pre-pandemic levels.
American said its capacity in the current quarter is expected to be down about 11% to 13% versus the fourth quarter of 2019. While revenue in the fourth quarter is estimated to recover to 80% of the 2019 levels from 75% in the September quarter, it forecast a pre-tax margin of minus 16% to minus 18%, excluding special items.
The company reported an adjusted loss of 99 cents per share in the third quarter, smaller than a loss of $5.54 a year ago and a loss of $1.04 estimated by analysts in a Refinitiv survey.
Southwest’s adjusted loss for the quarter came in at 23 cents per share, compared with $1.99 per share last year. Analysts on average expected Southwest to report a loss of 27 cents per share, according to Refinitiv data.
Southwest’s shares fell 1.3% and American’s rose 1.5%.
(Reporting by Rajesh Kumar Singh in Chicago and Sanjana Shivdas in Bengaluru; Editing by Vinay Dwivedi, Bernadette Baum and Nick Zieminski)
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