US carriers cut third-quarter margin forecasts

US carriers like American Airlines and Frontier Airlines, have cut their third-quarter margin forecasts on higher fuel costs, which has negatively affected share prices of other American carriers over concerns in relation to increasing expenses.

US carriers have already forewarned of headwinds related to surging fuel costs for this quarter, with oil prices rising due to extended production cuts by Russia and Saudi Arabia. The supply cuts could lift Brent futures above the US$100.00 (£80.00) a barrel threshold before the end of the year, according to Bank of America analysts. The Frontier low-cost carrier share prices fell 9% after it warned of a “recent significant unexpected change in the booking trajectory,” adding it had been hit by a greater volume of “recent operational cancellations” than it had previously forecast. “In recent weeks, sales have been trending below historical seasonality patterns,” Frontier said in a regulatory filing.

The forecast comes against the backdrop of early signs of weakening domestic travel demand, with inflationary pressures impinging on consumers and carriers who have been forced to hand out costly contracts to help them hold on to workers. According to Reuters news agency, American Airlines has confirmed it is anticipating a profit of 20 to 30 cents per share in the current quarter, appreciably lower than its previous forecast of 85 to 95 cents per share, subsequently sending its share price down 4%. The carrier also tightened its forecast for total revenue per available seat mile, a proxy for pricing power. It is now expected to fall 5.5% to 6.5%, compared with its earlier forecast of a 4.5% to 6.5% fall.

“Unsurprisingly fuel guidance revisions are placing pressure on implied EPS guides while revenue updates are more mixed, reiterating softness in the domestic market,” Raymond James analyst Savanthi Syth said. The share prices of bigger U.S. carriers including Delta Air Lines, Southwest Airlines and United Airlines each also fell around 2%.