At $95 per barrel, Brent crude oil is at an all-time high this year. And just as it accelerated the inflation rate, rising oil prices thwarted recovery plans for airline companies. According to the Bureau of Transportation Statistics (BTS) fuel costs account for 15 \u2013 20% of airline expenses.<\/p>\n
As of March 2023, BTS noted a 71.7% rise in the cost per gallon of fuel since January 2019. Moreover, because the oil price is so variable, it makes airline stocks volatile and risky investments.<\/p>\n
Since topping in July at $250, the S&P Supercomposite Airlines Industry Index dropped by nearly 24%. The index tracks the performance of the ten largest publicly traded US airlines, from United Airlines and JetBlue to Southwest and Delta Air.<\/p>\n
Moving into 2024, earnings expectations have now fallen by 10%, according to Bloomberg Intelligence. By the end of 2023, estimates place average airline profits to drop by 8%. This is a complete reversal of prior expectations.<\/p>\n
The Federal Aviation Administration (FAA) noted the highest post-lockdown daily air traffic in May. Combined with an average fuel cost per gallon lowering by 4% in Q2 compared to Q1, this increased optimism until July\u2019s top.<\/p>\n
American Airlines lowered its adjusted earnings per share (EPS) by 23 cents, now falling between 20 \u2013 30 cent range. Per SEC filing, the company sharply revised its previous optimism of above 95 cents a share.<\/p>\n
\u201cFuel prices have increased considerably since the Company\u2019s initial Q3 guidance. The Company now expects to pay an average of between $2.90 and $3.0 per gallon of jet fuel in Q3.\u201d<\/p>\n
Similarly, Spirit Airlines lowered its Q3 revenue forecast last Wednesday, having raised fuel cost estimates from $2.80 to $3.06 per gallon. However, known as a discount airline, Spirit noted \u201cheightened promotional activity with steep discounting for travel booked\u201d as the compounding factor.<\/p>\n
Over the last three months, American Airlines (AAL) plunged by nearly 18%, while Spirit Airlines (SAVE) took a modest hit of 8%. United Airlines is down 15% in the same period.<\/p>\n
In addition to rising fuel costs, airlines must deal with labor shortages. The International Civil Aviation Organization (ICAO) estimated that the aviation industry will need over 350,000 pilots and 480,000 new maintenance technicians by 2026.<\/p>\n
Both lockdowns and mandates resulted in the displacement of 2.3 million jobs since 2019, according to Oxford Economics. In the fallout, this great disruption elevated job demand, increasing labor costs.<\/p>\n
This means that labor unions have the upper hand. American Airlines had to approve a new contract with the Allied Pilots Association in August, retroactively paying $230 million in wages for the first four months of 2023. The contract also raised wages by 21%, increasing pilot compensation by 46% over the next four years.<\/p>\n
This article originally appeared on The Tokenist<\/i><\/p>\n
Sponsored: Find a Qualified Financial Advisor<\/b><\/p>\n
Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.<\/p>\n