US airlines cut profit forecasts as fuel costs outpace fare increases

Record sales, weaker profit outlooks

Delta Air Lines, Southwest Airlines and American Airlines have reduced their full-year 2026 profit forecasts. United Airlines has not issued a full-year earnings forecast, but its fourth-quarter profit outlook falls well short of Wall Street expectations. All four reported record revenue for the third quarter, helped in part by higher fares.

The scale of the fuel shock has overwhelmed those gains. A Reuters analysis published October 23 said jet fuel prices had climbed roughly 90% since the US-Israeli war on Iran began in February 2026, forcing several major carriers to lower earnings forecasts. Energy Information Administration figures cited by Reuters put Gulf Coast spot jet fuel at $4.63 a gallon on October 20, compared with $2.43 before the war.

Airlines now anticipate fuel prices of $4.25 to $4.85 a gallon, after paying well below $4 in the third quarter. United's additional revenue covered just 72% of its extra fuel expense during that quarter. American said the latest fuel-price jump alone would add about $1 billion to its fourth-quarter costs, while Alaska Air now expects a larger fourth-quarter loss than it had previously forecast.

Airline stocks have also trailed the broader market. The S&P Passenger Airlines Index, which tracks passenger airline shares, is down nearly 3% this year, while the S&P 500 has risen more than 13%.

Higher ticket prices test demand

Much of the industry's revenue growth has come from charging more rather than carrying more passengers. Combined third-quarter passenger revenue at Delta, United, American, Southwest and Alaska increased nearly $8.8 billion, or 18%, from a year earlier. Passenger traffic grew less than 1%.

Labor Department data cited by Reuters show that airfares averaged nearly 23% higher year over year during the seven months through September 2026. Overall consumer prices rose an average of 3.6% over the same period.

Carriers continue to raise prices. According to JPMorgan, JetBlue Airways initiated a $10 one-way increase in published domestic fares on October 21. United had led a similar increase the week before, which Southwest subsequently matched.

The demand signals are mixed. Transportation Security Administration airport screenings fell 2.9% in the third quarter from a year earlier. Reuters said the decline raised questions about whether higher fares were beginning to discourage travel.

United's leisure load factor, a measure of the share of available seats occupied, declined 1.3 percentage points in the quarter. Commercial chief Andrew Nocella called it evidence of "a small amount of elasticity given higher ticket prices" but also "a trade we would make every day." Southwest CEO Bob Jordan offered a different assessment after the carrier reported a nearly 22% increase in average passenger fares for the first nine months of 2026. He told analysts that "those higher fares are not causing an erosion of volumes."

Third Bridge analyst Liam Dorsey expects a difficult fourth quarter as fuel prices remain elevated, even with relatively strong consumer spending supporting revenue. "The big question is how long this consumer resilience can last," he said.

Flight growth faces new limits

Earlier in the year, airlines had expected fare increases, ancillary revenue and loyalty programs to absorb most of the additional fuel expense. Fuel prices have since risen faster than anticipated. With further ticket-price increases risking a slowdown in demand, carriers are starting to limit capacity to support fares and protect margins.

Some planned flights are already being removed. United said it would no longer operate certain flights scheduled for December 2026 and could make further adjustments in the first quarter of 2027 and beyond. American expects its network to grow more slowly in 2027 than this year. Delta CEO Ed Bastian said earlier this month that another reduction in planned flight growth might be needed next year to sustain fares and profitability.

Those moves come alongside plans that still call for faster domestic expansion. Airlines for America, citing Cirium data, said six major US carriers planned year-over-year capacity increases of 3.0% in the fourth quarter of 2026 and 3.8% in the first quarter of 2027, compared with just 0.2% growth in the third quarter.

The pricing pressure extends beyond the United States. Ryanair CEO Michael O'Leary warned that European airfares could record their largest increase in 2027.

Industry shake-up remains a possibility

United CEO Scott Kirby warned on October 21 that further structural changes could reshape the industry through the end of 2027. Earlier this year, ultra-low-cost carrier Spirit Airlines stopped operating, becoming the first airline to collapse because of the war in Iran. High fuel costs are also putting JetBlue under financial pressure.

JPMorgan analysts said Kirby's warning supported their view that the industry would need major adjustments if jet fuel stayed around $5 a gallon. They identified a possible leadership shake-up at American, consolidation among airlines or a JetBlue restructuring as scenarios increasingly under consideration by market participants, while leaving open the possibility of other changes.

The analysts believe Delta and United could ultimately benefit most from such a shake-up. JetBlue and Frontier Airlines are scheduled to report their third-quarter results next week.