Key facts
- Alaska Air forecast third-quarter profit between $0 and $1 per share, below the $1.38 analyst estimate.
- The airline cited renewed U.S.-Iran hostilities driving higher jet fuel prices.
- Shares of Alaska Air fell 3% in extended trading.
- Alaska expects its third-quarter economic fuel cost to average $3.75 per gallon.
- Delta Air Lines offered a stronger outlook, while United Airlines' forecast missed expectations.
Alaska Air Group Inc. (ALK) on Tuesday projected its third-quarter profit would fall short of Wall Street's expectations, citing elevated jet fuel prices exacerbated by renewed hostilities between the U.S. and Iran. The Seattle-based airline anticipates an adjusted profit per share between $0 and $1 for the July-to-September period, a range that falls below the average analyst estimate of $1.38 per share. In extended trading, Alaska Air's shares declined by 3%.
U.S. airlines are contending with billions of dollars in increased fuel expenses this year. Disruptions to shipping through the Strait of Hormuz and conflict involving Iran have driven oil and jet-fuel prices sharply higher. Jet fuel prices had retreated from their spring peak following a temporary truce in June but resumed their ascent in July as hostilities reignited.
Alaska Air expects its average economic fuel cost for the third quarter to be $3.75 per gallon, a decrease from the $4.43 per gallon paid in the previous quarter, attributed to a moderation in refining margins. Fuel typically represents about a quarter of an airline's operating costs, and price volatility has led carriers to increase fares, reduce flight schedules, and seek further cost reductions.
The airline is particularly susceptible to West Coast fuel markets, where limited refining and pipeline capacity can lead to higher and more volatile prices. Alaska Air has been working to diversify its fuel supply by increasing imports from Singapore, although refining margins there also surged earlier this year. Currently, about a fifth of Alaska Air's fuel is sourced from Singapore, with plans to potentially increase this proportion to 30% or 40%.
In contrast, Delta Air Lines reported a stronger-than-expected third-quarter outlook earlier in July. United Airlines' forecast, however, also missed Wall Street estimates, though both carriers noted that robust demand and higher fares were helping to offset increased fuel costs, with premium travel remaining particularly strong. For the second quarter, Alaska Air reported an adjusted loss of 92 cents per share, which was narrower than the average analyst estimate of a 99-cent loss.