American Airlines, United Airlines and Southwest Airlines are cutting or reconsidering their least-profitable routes as jet fuel climbs to $4.71 per gallon, more than double the cost a year ago and near a 20-year high.
At Morgan Stanley's annual Laguna Conference on Sept. 16, American CFO Devon May said the fuel spike has added $1 billion to the company's projected fourth-quarter expenses. He said the airline is cutting some December flights and planning for less growth next year.
Southwest CFO Tom Doxey said the carrier had been projecting capacity growth of 2-3% for the year, but has since cut that projection in half 'because fuel has been higher.'
United CFO Mike Leskinen said every airline has its 'bell curve of profitability' and that some routes make more money than others. As fuel costs rise, flights near the bottom of that curve stop making financial sense. United will have fewer flights in December and could make further cuts next year if costs stay high.
'There's some marginal routes that don't make sense in a higher fuel environment, so we cut them,' he said. 'We're flying to maximize profitability and free cash generation, so we'll make those adjustments.'
Leskinen also said 35% of United's fourth-quarter tickets were already booked, meaning the airline cannot retroactively raise those prices. He said there is room to pass higher fuel costs on to consumers eventually, noting that 'jet fuel price gets passed through with a lag.'
United and American declined to share the number of flights they cut. A Southwest spokesperson said the schedule adjustments were 'very minimal' and do not affect 'large scale exits of routes or airports.'
The move lands on travelers who are already seeing tighter availability. Fewer routes mean fewer choices, less convenient flight times and, in some cases, a layover instead of a nonstop trip.
The pressure is not limited to the U.S. United and American spent about $8.2 billion and $7.8 billion respectively on fuel in the first six months of this year, both up almost 49% from a year earlier, according to their latest filings. Southwest spent nearly $3.6 billion, up about 39%.
Fares are already rising. Airline prices were 23.4% higher in August than a year earlier, compared with a 3.4% increase in overall consumer prices, according to the Bureau of Labor Statistics.
War in Iran has choked off the global supply of oil, and that shock has hit jet fuel particularly hard. Europe is feeling it too. Ryanair cut its full-year passenger forecast this month from 216 million to 214 million, and CEO Michael O'Leary warned oil prices could raise the carrier's cheap European flights.
For the market, the message is simple: when fuel spikes, capacity gets pulled back and consumers pay more. Capital rewards clear rules and predictable costs; when those disappear, airlines defend margins the only way they can, by cutting the least profitable service and charging more where the market allows.
