Soaring jet fuel prices threaten to overshadow post-pandemic travel rebound

An American Airlines Boeing 787-9 Dreamliner approaches for a landing at Miami International Airport on December 10, 2021 in Miami, Florida.

Joe Raedle | Getty Images

Airlines trying to pull themselves out of two years of a deadly pandemic are now facing the highest jet fuel costs in more than 13 years.

Russia’s invasion of Ukraine last month sparked a global panic over fuel supplies.

Some analysts expect U.S. carriers to cut first-quarter earnings and revenue estimates in the coming weeks after fuel costs rose 32% in the past week alone. The expense is usually the second largest for airlines, behind labor.

“Rising fuel will more than wipe out better near-term earnings, leading to modest reductions in 1Q22 estimates,” MKM Partners airline analyst Conor Cunningham wrote in a note.

Soaring fuel prices – more than 50% so far this year – are the latest challenge for carriers who expect travelers to return in droves this year as Covid-19 cases plummet.

Airline stocks have been among the hardest hit industries in recent weeks as Russia swarmed markets in turmoil. United Airlines, which has the largest international network of US carriers, fell more than 17% last week. Shares of Delta Air Lines lost 13% last week and shares of American Airlines fell 15%. The S&P 500, by comparison, lost 1% over the same period.

Airlines are limited in how much they can raise fares when chasing passengers returning to the skies.

For the second quarter, U.S. domestic schedules were flat compared to 2019 “and we doubt much capacity will be reduced given increased competition for the leisure customer,” said Bank of America airline analyst Andrew Didora. in a research note on Monday.

Didora said demand is expected to exceed supply, particularly during peak leisure periods, “but that won’t create enough price to offset the movement in fuel.”

The second and third quarters, which coincide with spring and summer break, are when US carriers generate the bulk of their revenue.

It could take months before travelers feel the price of fuel in the tickets. Cowen & Co. airline analyst Helane Becker predicts a delay of about four months before fares catch up.

“As a result, the next few months are likely to be financially worrying, even with heavy traffic,” she said in a note on Friday.

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