U.S. airline stocks staged a modest rebound this week, even as earnings showed that resilient travel demand is being offset by sharply higher fuel costs. United Airlines missed third-quarter earnings expectations and cut its outlook, while Alaska Airlines also fell short of forecasts. Southwest Airlines is due to report after Wednesday's close, and American Airlines has scheduled an investor call for Thursday morning.
United's adjusted third-quarter earnings per share fell nearly 9% year on year to $2.54, below the $2.57 consensus estimate. Revenue rose more than 17% to a record $17.86 billion, narrowly missing the $17.89 billion market forecast.
Premium cabins and cargo lift revenue
United said revenue growth was supported by several business lines, including premium cabins, basic economy, its loyalty program and cargo. Overall passenger demand remained resilient, helping the airline set a new revenue record. However, the increase in sales did not fully translate into higher profit.
Fuel was the main source of pressure during the quarter. United's fuel expense rose 62% from a year earlier to more than $4.84 billion. Its average fuel price increased to $3.90 per gallon from $2.43 a year earlier, with costs rising substantially faster than revenue.
United seeks to pass on more of the fuel burden
United CEO Scott Kirby said the company has so far passed about 72% of the impact of higher fuel prices on to customers, and aims to raise that share to close to 100%. That could mean further fuel-related cost increases being reflected in fares or other passenger charges, while potentially affecting demand and airlines' pricing flexibility.
For investors, United's results highlight the tension facing the airline industry. Passenger volumes and diversified revenue streams continue to support top-line growth, but higher fuel costs are eroding profitability. Attention is shifting from demand recovery alone to whether airlines can pass through higher costs while protecting margins.
Fourth-quarter earnings range comes in low
United expects adjusted fourth-quarter earnings per share of between $0.50 and $1.50. The airline also lowered its outlook, although the available information did not specify the full size of the reduction or provide detailed reasons.
Results and management commentary from Southwest and American will offer further clues on industry demand, fare levels and fuel-cost pressure. Airline stocks still posted a modest rebound after United reported, but the move appeared to reflect continued confidence in travel demand rather than an easing of fuel-cost pressures. The next phase of share-price performance will depend on how each carrier balances fares, passenger volumes and costs.