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Higher fuel costs pose headwinds for US airlines' 2Q results

American Airlines' CEO Doug Parker said the second quarter was its most challenging since the merger with US Airways

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Rising fuel prices are also set to hit American's full-year earnings

Higher fuel costs posed considerable headwinds for the big US airlines in the second quarter.

American Airlines (NASDAQ:AAL), the biggest airline by market cap, reported a nearly 35% decline in second-quarter profits as higher fuel costs lifted expenses by more than US$700mln from this time last year.

The airline reported net income of US$566mln, or US$1.22 per share, in the quarter, down from US$864mln, or US$1.75, per share in the same period a year ago.

On an adjusted basis, its were US$1.63, which flew past Wall Street’s consensus estimate of US$1.59. But revenue results missed projections, coming in at US$11.643bn and failing to meet the average estimate of US$11.679bn.

Higher fuel prices contributed to a 10% jump in American’s operating costs to US$10.6bn, the company said. 

“This was perhaps the most challenging quarter for the American team since our merger with US Airways in 2013,” said American’s CEO Doug Parker. “Our revenues, while increasing have begun to trail the rate of increase at our largest competitors for the first time since early 2016.”

With fuel prices set to rise by more than US$2bn, American expects its yearly earnings to be lower than last year. It now expects full-year earnings per share of US$4.50 to US$5.0.

American's shares were flat at $38.20 in premarket trading.

Alaska Air results leave investors cold

Shares in Alaska Air Group Inc (NYSE:ALK) also slipped in pre-market trade as investors were unimpressed by the airline’s results, which were hit by its difficult merger with Virgin America.

On an adjusted basis, the Seattle company reported earnings of US$1.66 per share, which beat analysts’ estimate of US$1.63 per share. Its revenue of US$2.16bn, meanwhile, failed to live up to the Street’s expectations as analysts had penciled revenue of US$2.17bn.

Alaska Air shares slumped 3.23% in pre-market trade to US$57.20.

No LUV for Southwest Airlines

Shares in Southwest Airlines Co (NYSE:LUV), the biggest carrier of domestic passengers, also dipped in pre-market trade as it missed Wall Street’s revenue forecast for the second quarter in the wake of an in-flight accident involving a fatality last April.

The airline reported that the accident on Flight 1380 from New York to Dallas, which stemmed from engine failure, slashed US$100mln off of its revenue in the quarter.

“We expect the revenue impact from this headwind to be temporary and subside in third quarter 2018 and are encouraged by the solid rebound in demand,” said CEO Gary Kelly in a statement.

The company reported net income of US$733mln or US$1.27 per share in the quarter, down from US$743mln or US$1.23 per share in the year-ago period. On an adjusted basis, its earnings swung to US$1.26 per share, which beat Wall Street’s estimate of US$1.23. But the airline fell short of the market’s revenue forecast, reporting revenue of US$5.742bn against the estimate of US$5.768bn.

Southwest’s revenue per available seat mile, a key revenue metric, dropped by 3% from last year while its cost per available seat mile rose 2.3%.

Southwest shares were flat at US$51.80 in the pre-market session.

Quick facts: American Airlines Group

Price: 17.095 USD

NASDAQ:AAL
Market: NASDAQ
Market Cap: $10.47 billion
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