July 22 (Reuters) – Southwest Airlines forecast third-quarter profit below Wall Street expectations on Wednesday, after renewed U.S.-Iran fighting sent fuel prices higher again, eclipsing the benefits of strong travel demand and gains from assigned seating and extra-legroom offerings.
Shares of the carrier fell more than 2% in extended trading, after it forecast full-year adjusted earnings of $3.25 to $4.25 per share, with the midpoint below its previous forecast of at least $4.
U.S. airlines have raised fares and baggage fees as well as pared back schedules to offset soaring fuel costs, which have added billions of dollars to industry expenses this year. U.S. airline fuel bills jumped 85% in May alone to nearly $6.7 billion.
Jet fuel prices more than doubled after the Iran war began, and traffic through the Strait of Hormuz was severely disrupted. Prices retreated sharply from their spring peak after a fragile U.S.-Iran truce in June, but climbed again as hostilities resumed in July.
Oil prices are approaching a six-week high this week as attacks and threats to other regional shipping routes renewed fears of supply disruptions.
The persisting volatility has made it more difficult for airlines to forecast costs and earnings, particularly because their fuel estimate is generally based on forward-market prices at a specific point in time.
Southwest paid an average fuel price of $3.92 per gallon in the second quarter, compared with its forecast of $4.10 to $4.15 per gallon.
For the third quarter, it expects fuel costs of $3.70 to $3.75 per gallon, based on the jet-fuel forward curve as of July 17.
Elsewhere in the industry, the fuel shock clouded Alaska Air’s profit outlook despite strong bookings, while Delta and United expect robust demand and higher fares to help absorb the hit from increased fuel expenses.
Southwest forecast third-quarter adjusted earnings of 50 cents to 75 cents per share, below analysts’ estimate of 82 cents, according to data compiled by LSEG.
The company reported second-quarter adjusted earnings of 94 cents per share, above analysts’ average estimate of 51 cents per share. Its operating revenue rose 16.4% to $8.7 billion.
(Reporting by Nandan Mandayam in Bengaluru; Editing by Shilpi Majumdar)
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