Your Next Flight Could Cost More Due to Iran War: United, American Airlines Signal Capacity Cuts Over Elevated Fuel Costs

As the war in Iran continues to drive volatility in global oil markets, the aviation sector is also feeling the heat from higher fuel costs. Now, United Airlines Holdings Inc. (NASDAQ:UAL) and American Airlines Group Inc. (NASDAQ:AAL) signal that capacity cuts could follow. United CFO Says Some Routes Don’t Make Sense Speaking at Morgan Stanley‘s (NYSE:MS) Laguna Conference on Wednesday, United CFO Michael Leskinen was asked about capacity changes following CEO Scott Kirby‘s comments about possible fare increases amid the war. Leskinen said that the airline had a “philosophy” of driving profitability. Read Also: Elizabeth Warren Slams Delta’s ‘Union-Busting’ Moves, Vows Pushback Over Threats to Halt Pay, Benefits: ‘Flight Attendants Have…’ “When the world changes, we change. We don’t stick our head in the sand,” he said, adding that the airline had expected the fuel prices to remain elevated. “We made some adjustments to our schedule because every airline has a bell curve of profitability,” he added. Leskinen said that some routes were pushed to the lower end of profitability as fuel costs spiked, but acknowledged that demand had been “resilient” despite the fuel shocks. “There’s some marginal routes that don’t make sense in a higher fuel environment, so we cut them,” Leskinen said, adding that the airline would cut some routes in December that the airline was originally going to. “If fuel remains high, we’ll make some adjustments into the first quarter and beyond into 2027,” he said, adding that the airline was focused on maximizing profitability and not market share. American Airlines Points to the Crack Spread Angle Meanwhile, American Airlines CFO Devon May also pointed to some capacity cuts for the flight operator amid high fuel costs. “On the capacity side, we’ll continue to adjust capacity for late in the fourth quarter here, just given what’s happening in fuel,” he said. However, CEO Robert Isom pointed toward the crack spread, which is the profit margin that the refineries earn for refining crude oil into fuel. “If it were just a crude oil issue that we’re dealing with right now, or $100 a barrel oil that we dealt with at various times in our history, we’d be in much better shape in terms of producing profits,” Isom said. “The fact of the matter is there’s a crack spread on that, and that has grown by 3x,” he said. According to an International Air Transport Association (IATA) report on September 11, the average jet fuel crack spread was at $67.80/bbl, which was lower than the week prior to that at $74.17/bbl. Isom also pointed to American Airlines’ third-quarter revenue growth, which he said was expected to be around 16% to 19% year over year. “I do think that is going to be durable,” he added. Isom also outlined that fuel costs had climbed by $1 billion for the fourth quarter. “If fuel prices remain as high as they are right now, I think that, that’s going to require some adjustments in terms of our capacity planning as we take a look out in the future,” he said. Read Also: American Airlines Taps Former Spirit Exec as CEO Isom Faces Growing Pressure to Close Profit Gap: Report Check out more of Benzinga’s Future Of Mobility coverage by following this link. Photo courtesy: Shutterstock