By Rajesh Kumar Singh and Shivansh Tiwary
CHICAGO, Sept 16 (Reuters) – American Airlines CEO Robert Isom said on Wednesday that persistently high fuel prices could force the carrier to adjust capacity, even as strong demand and revenue gains have helped offset much of the higher cost.
Speaking at a Morgan Stanley conference, Isom said he felt “really good” about American’s third-quarter revenue growth forecast of 16% to 19% and expected the vast majority of the recent revenue gains to prove durable.
The comments highlight the pressure on airlines as another jump in fuel prices tests how much of the higher cost can continue to be offset through stronger revenue.
American says it has recaptured a substantial portion of the increase so far, but the latest spike is now prompting capacity adjustments for the late fourth quarter.
Isom said revenue strength was broad-based across domestic and international markets and both premium and coach cabins. He said American had already recaptured “a tremendous amount” of the higher fuel expense through revenue.
He described the current year-over-year revenue improvement as unlike anything he had seen in his career, outside of recoveries following the COVID-19 pandemic and the September 11 attacks.
FUEL SPIKE ADDS PRESSURE
Speaking at the same conference, American Airlines’ chief financial officer, Devon May, said fourth-quarter fuel prices had risen roughly $1 a gallon from the level assumed when American issued its guidance in July, adding about $1 billion to the carrier’s fuel costs.
May said every 1-cent move in fuel prices changes American’s quarterly costs by about $10 million. The airline would continue adjusting capacity late in the fourth quarter because of the increase, he said.
The latest fuel spike has had its biggest impact on the fourth-quarter outlook. May said July and August fuel prices were broadly in line with American’s third-quarter assumptions before rising in September.
American’s third-quarter revenue, capacity and unit-cost performance otherwise remained in line with expectations, May said, leaving fuel as the main variable in the outlook.
Asked whether the fuel increase could force American to lower its full-year guidance or result in negative free-cash flow, May said the carrier would monitor how fuel prices settle over the next several weeks and provide fourth-quarter guidance when it reports earnings.
(Reporting by Rajesh Kumar Singh in Chicago and Shivansh Tiwary in Bengaluru; Editing by Matthew Lewis)
