Airlines warn about spike in fuel costs, Southwest narrows revenue outlook

Major U.S. airlines warned about a spike in jet-fuel prices, adding to costs during the busy summer travel season.

Jet-fuel in Chicago, Houston, Los Angeles, and New York averaged $3.18 a gallon on Tuesday after the Labor Day holiday weekend, up more than 30% compared with July 5, according to industry group Airlines for America.

Fuel and labor are airlines’ biggest costs. A spike raises questions about how much of the increase carriers have been able to pass along to customers this summer after fares fell from last year.

The higher cost forecasts come as Southwest Airlines narrowed its unit revenue outlook for the current quarter. The Dallas-based carrier said it expected unit revenue to fall 5% to 7% from last year in the three months ending Sept. 30. In July, Southwest said revenue could drop as little as 3% this quarter from last year.

“While August 2023 close-in leisure bookings were on the lower-end of the Company’s expectations, modestly impacted by seasonal trends, overall leisure demand and yields continue to remain healthy,” the carrier said in a securities filing.

Southwest said that it expects fuel to average $2.70 to $2.80 a gallon this quarter, up from its earlier estimate of up $2.55 to $2.65. It maintained its forecast for capacity to rise 12% from 2022.

Other carriers warned increased costs could affect their results.

Alaska Airlines said higher fuel prices will eat into its pretax margin this quarter.

United Airlines maintained its revenue forecast, but said it expects fuel prices of as much as $3.05 for the quarter, up from its July estimate of no more than $2.80 a gallon.

Airlines are scheduled to report quarterly results in October.