[Source: Reuters]
US airlines are entering the final quarter of the year with a central problem: resilient passenger traffic and sharply higher fares have not been enough to fully offset soaring fuel costs.
Third-quarter results from most of the US carriers revealed that the steady demand for air travel has allowed airlines to raise ticket prices and generate record revenue, but the surge in jet fuel expenses has pressured margins and prompted these companies to take a more cautious view on profit and capacity growth.
The S&P Passenger Airlines index (.SPCOMAIR), opens new tab is down nearly 3% this year, sharply underperforming the benchmark S&P 500’s (.SPX), opens new tab gain of more than 13%.
“The fourth quarter is shaping up to be an operationally tough quarter with jet fuel prices expected to remain elevated, diminished capacity plans, but durable revenue trends from consumers,” Third Bridge analyst Liam Dorsey said.
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“The big question that remains is how long consumer resiliency lasts.”
As the war in Iran stretches into its eighth month, US carriers must also determine how much more of the fuel cost surge they can pass on to customers without weakening travel demand.
US air fares rose an average of nearly 23% year-on-year in the seven months through September, according to Labor Department data.