American’s cut is a substantial one, driven by higher labor costs following its pay agreement with pilots and elevated fuel prices.
Investors were handed more reasons to be bearish on airline stocks Wednesday as American Airlines and Spirit Airlines both lowered guidance for the current quarter.
The airline’s pilots agreed to a new four-year contract last month, which the Allied Pilots Association union said would increase pay by 46%. American previously said the agreement would cost an extra $230 million in retroactive pay. On Wednesday, it said this would represent a hit of 23 cents a share to third quarter earnings—the rest is down to higher fuel prices. That’s a big fuel hit.
The low-cost carrier said it has been seeing steep discounting for travel booked for the second half of the current quarter through the pre-Thanksgiving travel period. Signs of softening demand have kept airline stocks under pressure in recent months, and Spirit’s warning will only exacerbate those concerns.Spirit now expects revenue of between $1.245 billion and $1.255 billion in the third quarter, down from between $1.3 billion and $1.32 billion.
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