Airlines lead S&P 500 rally after laying out path to profit

Bloomberg

US airline stocks jumped the most in the S&P 500 Index after carriers said they will trim flying to remain on track toward profits even as fuel prices rise.
Several of the largest carriers, including United Airlines Holdings Inc and American Airlines Group Inc, cut their capacity forecasts for the first quarter, while Delta Air Lines Inc held growth to the low end of a previous range, according to regulatory filings. Many simultaneously boosted their revenue expectations,
citing surging travel demand in the wake of waning coronavirus infections.
The capacity moves may help ease investor concerns over the impact of higher fuel costs as the industry looks to recover from a pandemic slump. The jump in oil prices — particularly after Russia’s attack on Ukraine — is pressuring margins for an industry that’s still struggling for profits, forcing airlines to tighten the supply of available seats in response.
United is seeing “unprecedented leisure demand,” Andrew Nocella, the airline’s chief commercial officer, said at a JPMorgan Chase investor conference. “People want to get back out. Business traffic is booming, although we still have a long way to go.”
Fuel prices, one of the largest costs for carriers, had increased 37% this year, before tumbling Tuesday to $2.89 a gallon in New York harbor. Airlines now are projecting jet fuel to cost $2.80 to $3 a gallon this quarter, up from previous estimates around $2.50.
“We’re prepared for higher fuel and confident in our ability to recapture it,” Daniel Janki, Delta’s chief financial officer, said at the JPMorgan conference. The top executive of American said the industry could be profitable at $100 a barrel oil prices.
United’s first-quarter capacity will be 19% below 2019 levels, compared with an earlier plan to be down 16% to 18%, due in part to “current geopolitical conditions,” the carrier said in its filing.
Unit costs will be 18% higher than the 2019 period. Fewer flights typically allows airlines to charge more for seats when demand is strong.
American Airlines’ first-quarter flying will be as much as 12% below 2019, compared to a maximum of 10% in a previous forecast.