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Shares of American Airlines (AAL), the largest US carrier by seat capacity, fell 3.6% on Wednesday after the company announced a significant earnings outlook cut. Per Bloomberg’s report, America expects earnings per share (EPS) to be 20 to 30 cents in Q3, down from 90 cents, amid mounting fuel and labor costs. 

American Airlines Trims Guidance as Jet Fuel Costs Surge 34% 

American Airlines reduced its Q3 profit outlook due to an upswing in jet fuel costs and a $230 million payment in retroactive salary for its pilots outlined in the new contracts. Following the adjustment, the firm now expects third-quarter earnings per share to range between 20 and 30 cents, significantly lower than the previous guidance of 90 cents.

Additionally, one of the US’s biggest airlines cut its adjusted operating margin outlook by as much as 5% and projected a revenue decline of at least 5.5% year-over-year, compared to the previously expected decline of 4.5% to 6.5%. 

The substantial tweak in outlook comes amid an abrupt spike in fuel prices this quarter, which is seen as the industry’s most significant expense by far. The surging costs coincided with a notable decline in fares, adding to the uncertainty surrounding the US aviation market, especially as leisure travelers flocked to book trips to Europe during the summer. 

According to Bloomberg, spot prices for jet fuel in New York harbor soared 34% since the beginning of the quarter. Further, American Airlines expects fuel prices to hit $3 a gallon, up from an earlier $2.65. 

Oil Prices Soar to 10-Month High, Inflation Rises

The increase in jet fuel costs comes alongside a fresh spike in crude oil prices, which have surged to the highest level since November 2022 on Wednesday.

Benchmark Brent and WTI futures contracts have rallied higher amid growing concerns that tight crude supply would persist throughout 2023. These issues have been reflected in the latest adjustment by the International Energy Agency (IEA), which has slashed the Q4 oil demand growth outlook by 600,000 barrels per day (bpd).

Meanwhile, the latest consumer price index (CPI) data released today showed that the annual inflation rate saw a higher-than-expected increase to 3.7% in August, compared to the consensus estimates of 3.6%, and the July print of 3.2%. Although the new print is very unlikely to affect the no-hike scenario for this month, there is a decent chance the Federal Reserve will impose at least one more rate increase before the end of the year. 

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