Airline stocks retreated from resistance Wednesday after American Airlines and Spirit Airlines cut their outlooks for the current quarter based on higher jet fuel prices and waning travel demand. AAL stock and SAVE stock led the declines.
American Airlines slashed its Q3 adjusted earnings forecast Wednesday, saying a surge in jet fuel prices and its new pilots union labor contract will squeeze profit. American now expects to pay between $2.90 and $3 per gallon of fuel, compared its previous guidance of $2.55 to $2.65 per gallon.
The airline will also recognize $230 million in retroactive payment expenses after reaching a collective bargaining agreement with the Allied Pilots Association in late August. That will further reduce adjusted operating margins and earnings.
American more than halved its Q3 adjusted earnings guidance to range from 20 cents to 30 cents per share, from the previous range of 85 cents to 95 cents per share. It sees its adjusted operating margin ranging between 4% to 5% for the quarter, from the prior outlook of 8% to 10%.
American forecasts Q3 revenue per available seat mile will fall between 5.5% and 6.5% vs. the previous guidance of a 4.5% to 6.5% drop. The airline revised its total available seat miles higher for the quarter and expects 6% to 7% growth from 2022. American expected 5% to 7% growth during its earlier guidance.
Spirit Sees Demand Stall
Spirit Airlines increased its promotional activity, offering steep discounts for bookings in the second half of Q3 through the pre-Thanksgiving travel period, the company announced in a Wednesday filing. As a result, the airline cut its revenue and margin outlooks on the dip in demand and rising fuel prices.
Spirit sees total revenues ranging from $1.245 billion to $1.255 billion, down from $1.3 billion to $1.32 billion. The airline now expects its adjusted operating margin to decline between 14.5% and 15.5%, compared to its prior outlook of a 5.5% to 7.5% drop. Spirit sees fuel costs rising to $3.06 per gallon vs. previous expectations of $2.80 per gallon. Spirit forecasts total available seat miles increase 13.4% for Q3, down 30 basis points from the former outlook.
Meanwhile, the Department of Justice is trying to break up JetBlue's proposed $3.8 billion buyout of Spirit Airlines on antitrust grounds. A trial is set for Oct. 16. On Monday, JetBlue agreed to transfer Spirit Airlines gates and flight slots at three airports to appease regulator concerns.
American and Spirit aren't the only airlines warning of rising fuel costs. Southwest Airlines and United Airlines raised similar concerns last week. Southwest lowered its revenue guidance while United maintained its outlook.
AAL Stock, Airline Price Action
AAL stock fell 5.7% Wednesday following the announcement. Shares have fallen off after hitting their 2023 high of 19.08 on July 13. American shares gained 5.6% this year through Wednesday's close.
SAVE stock retreated 6.3% Wednesday. Shares leapt almost 12% Monday after JetBlue announced plans to transfer the Spirit airport assets. SAVE stock hit its 2023 peak of 19.69 on July 12 and fell 16.9% this year through Wednesday.
Meanwhile, United, Delta and Southwest stock all swung between 1.7% and 3.8% lower Wednesday.
Collectively, the 20-stock industry group had mounted a two day rally — similar to a rebound attempt in late August. Like the August attempt, the rally topped out and died at the group's short-term 10-day moving average.
The retreat from the 10-day level was more abrupt than in August, suggesting were taking profits more emphatically, suggesting the level of resistance may be growing more durable — not a good sign for those hoping for a near-term industry recovery.
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