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American Airlines CEO Doug Parker announced Thursday morning that rising fuel costs are gouging the carrier’s profits, and will drive up airfares.
“If indeed this is where fuel prices are going to stay, I would expect you would see higher fares to consumers over time,” Parker said Thursday during a Q1 2018 earnings call. Jet fuel is the airline’s second-biggest expense after labor, so when costs go up, so do ticket prices; for American Airlines, costs had risen 40 cents a gallon from a year ago, leading to adjusted earning expectations for 2018 after a 45%, or $186 million, drop in first-quarter profit.
Shares fell $2.69, or 6%, to $42.56 in trading shortly after the opening bell on Wall Street following Parker’s announcement. While American – the world’s largest airline – has heavily invested in replacing older gas-guzzling aircraft in favor of new, more efficient planes, fuel expenses have jumped 26%. Over the first quarter of 2018, American Airlines burned just more than 1 billion gallons at an average cost of $2.10 per gallon, up from $1.70 a year earlier, and Parker estimated that the carrier could have saved $412 million if per-gallon fuel costs were still fixed at early 2017 prices.
Not all numbers were on the decline for American Airlines: Passenger revenue per mile has risen by 3% compared to Q1 2017, while revenue rose by almost 6%, to $10.4 billion. Still, American cut its 2018 profit forecast to between $5 and $6 per share – a $0.50 drop from its January 2018 predictions.
Featured photo courtesy of Getty Images.
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