Fueling Uncertainty: Airline Stocks Navigate Turbulent Skies Amid Rising Costs

Airline stocks faced a downturn on Wednesday, with major carriers expressing concerns over escalating fuel costs. While the third quarter promises robust returns for the airline sector, rising fuel costs post-Labor Day, signaling the close of the peak summer travel period, raise investor apprehension.

Southwest Airlines (LUV) witnessed the steepest decline at 4.3%, revising its third-quarter outlook. The carrier predicts a 5% to 7% year-over-year drop in revenue per available seat mile, an adjustment from its earlier 3% to 7% estimate. Despite a record revenue performance over the Labor Day weekend, Southwest adjusted its fuel cost estimates to $2.70-$2.80 per gallon, up from the prior $2.55-$2.65.

United Airlines (UAL) echoed concerns about fuel prices, noting a 20% surge since mid-July. Its new fuel price range is $2.95-$3.05 per gallon, a jump from the initial $2.50-$2.80 estimate. Still, United retained its revenue and cost projections set in July, indicating a favorable third-quarter performance, even as its stock dropped 1.4% in premarket trades.

Alaska Air (ALK) warned that elevated fuel costs would dent its profit margins, now forecasting pre tax margins of 10%-12%, a decrease from the prior 14%-16%. Adjustments to its revenue expectations were also made, attributing it partly to flights canceled due to Maui wildfires.

This wave of caution dampened the overall sentiment, pulling down other airline stocks. Delta Air Lines (DAL)saw a 1.2% decrease, and American Airlines  (AAL) dropped by 0.8%, with both yet to comment on their third-quarter guidance.