On Wednesday, Southwest Airlines announced worse August vacation bookings and joined two other US airlines in announcing that the third quarter will likely see higher fuel expenses due to an increase in crude prices.
The largest domestic US airline reported that, while August bookings fell short of forecasts in part because of seasonal patterns, overall leisure demand and yields are still strong.
Southwest’s stock dropped 4% before the market opened before ending the day down 2.6% at $29.97.
Early indications of a decline in domestic travel demand are predicted, and inflationary pressures are hitting consumers even as airlines offer expensive contracts to employees to stay put.
As crude oil prices increased for a third straight month in August despite signs of restricting supply, United Airlines and Alaska Air Group both issued warnings about rising fuel expenses in the upcoming quarter.
The carrier added that despite purchasing 113 acres of land in Denver, it has no immediate plans to relocate its headquarters there from Chicago. The development of the Denver flight training facility is the first order of business, according to finance chief Gerald Laderman at the TD Cowen Transportation Conference.
Southwest said it is still expecting a “solid (third-quarter) profit,” but it has reduced its prediction for revenue per available seat mile, a measure of pricing power, from a 3% to 7% dip to a 5% to 7% fall.
In contrast to its earlier prediction of 14% to 16%, Alaska Air now anticipates a quarterly adjusted pre-tax margin of 10% to 12%.
US airlines are often not insured against fuel price fluctuations, leaving them open to price fluctuations.
In a letter, Citi Research analyst Stephen Trent noted that “The relatively quick up move in fuel has given the industry little time to respond through fares.”