Alaska Air Group (ALK) projected an additional $600 million in second-quarter fuel expenses, a figure that surpasses its total profits from the past two years, as the carrier suspended its full-year guidance amid soaring energy costs driven by the Iran war.
“Until conditions stabilize and we have better sight to earnings beyond the current quarter, we have suspended full-year guidance,” the company said Monday in a statement. “The range of potential financial outcomes remains wide and difficult to predict, as recent geopolitical factors have resulted in sharp and unpredictable changes in fuel prices.”
The airline reported mixed first-quarter results, missing earnings estimates while beating on revenue. The carrier posted a loss of $1.69 per share, wider than the consensus estimate for a $1.65 loss, on revenue of $3.3 billion, which edged past expectations of $3.28 billion.
The announcement sent shares down 4.1% Monday, extending the stock's year-to-date decline to nearly 14%. The $600 million headwind highlights the airline industry's vulnerability to geopolitical shocks, forcing carriers like United Airlines (UAL), Delta Air Lines (DAL), and Air Canada (AC.TO) to cut routes and raise fees to offset fuel prices that have doubled since the conflict began.
The war in Iran and the subsequent closure of the Strait of Hormuz have triggered what the International Energy Agency calls the "largest energy crisis" in decades. Jet fuel prices climbed to $4.88 per gallon in March, up from approximately $2.50 before the conflict, according to data from Airlines for America. Alaska Air said it expects its average fuel price to be around $4.50 per gallon in the second quarter.
The cost pressure has forced a wave of defensive measures across the industry. Delta said it could spend an additional $2 billion on fuel this year and has cut four routes for the summer. United Airlines is trimming its schedule by about 5 percent and, along with American Airlines (AAL) and Southwest Airlines (LUV), has raised baggage fees by as much as $10 per bag.
International carriers are facing even more acute challenges. Air Canada suspended service to New York's JFK airport, while European carriers KLM and Lufthansa have canceled hundreds of flights and grounded aircraft, respectively, citing routes that are "no longer financially viable."
For its part, Alaska Air is proactively trimming its own schedule, revising its second-quarter capacity growth forecast down to approximately 1 percent from a prior range of 1 to 2 percent. Despite the fuel headwinds, the company noted that premium revenue grew 8 percent in the first quarter and it projects high-single-digit revenue growth for Q2, citing resilient travel demand.
The guidance withdrawal signals deep uncertainty for the airline sector's profitability heading into the peak summer travel season. Investors will watch for United Airlines' earnings on Wednesday and American Airlines' report on Thursday for further signs of how carriers are managing the historic fuel price surge.
This article is for informational purposes only and does not constitute investment advice.
