U.S. Airlines Seen Trimming Guidance as Jet Fuel Costs Soar

(Bloomberg) -- U.S. airlines counting on rejuvenated demand for spring and summer travel as the coronavirus wanes now face a new setback as Russia's attack on Ukraine pushes jet fuel prices to multiyear highs.

Carriers could reveal reductions in planned flying as they update financial guidance at industry conferences in the coming weeks, Conor Cunningham, an MKM Partners analyst, said in a note Friday. The blow may be softened as tightening supply makes it easier to boost fares, he said.

The Russian invasion of Ukraine has battered global oil markets, and fear of a supply shortage has pushed up prices. Fuel and labor are the largest costs for airlines, and spot jet fuel prices in New York harbor soared to $3.56 a gallon Friday, up 30% this week to the highest level since 2008.

“The question now is which airline will blink first when it comes to capacity cuts,” Cunningham said. “Even if it is just a select few to slow capacity adds, we expect pricing to steadily improve on those actions” along with increased international and corporate travel in the first quarter.

He expects second- and third-quarter flying to be “modestly reduced.”

American Airlines Group Inc., Southwest Airlines Co. and Alaska Airlines likely will make cuts, he said. International flying, which hasn't fully recovered from 2019 pre-pandemic levels, is more likely to be trimmed. American has added back capacity sooner than rivals during the pandemic, and Cunningham said United Airlines Holdings Inc. and Delta Air Lines Inc. are unlikely to announce U.S. reductions as they continue rebuilding their networks.

American, Delta, United and Southwest declined to comment on their plans involving capacity changes or financial guidance. Alaska didn't immediately respond to a request for comment from Bloomberg.

Cunningham broadened first-quarter loss estimates for American, Delta, United and Spirit Airlines Inc.

A pause in near-term bookings linked to the war may be temporary, Cunningham said, especially in domestic markets. It's not clear if the war will ruin what was expected to be “a significant recovery” in Europe this summer. “At the very least, the war won't help the recovery,” he said.