Fuel costs cloud Alaska Air's outlook even as demand remains strong

CHICAGO, July 21 (Reuters) - Alaska Air Group on Tuesday forecast third-quarter results below Wall Street estimates and said it expected to recover only about half of its higher fuel costs at current prices, after recouping very little in the second quarter. The Seattle-based airline's large Hawaii operation leaves it more exposed to elevated Singapore refining margins, making this year's fuel shock more damaging for it than for larger rivals as renewed U.S.-Iran fighting pushes prices higher again. Alaska expects third-quarter adjusted earnings ranging from breakeven to $1 per share. The midpoint of 50 cents is well below analysts' average estimate of $1.38, according to LSEG. Its shares fell about 1.7% in after-market trading. Alaska reported an adjusted second-quarter loss of 92 cents per share, narrower than analysts' average estimate of a 99-cent loss. Fuel expenses rose 86% from a year earlier and added about $600 million in costs, even as revenue increased 10% on capacity growth of 1%. Demand has remained strong enough to support higher fares, and Alaska expects third-quarter unit revenue to grow by a low-double-digit percentage, outpacing a low- to mid-single-digit rise in non-fuel unit costs. St. John said September and October bookings were "just as strong" as during the peak summer season. "There appears to be little impact on demand, even with prices moving upward," he said. Hawaii remains Alaska's main weak spot, with heavy rains hurting second-quarter revenue and a two- to three-point unit-revenue drag expected this quarter. Still, Alaska plans to begin replacing Hawaiian Airlines' inter-island Boeing 717s with larger 737-800s in 2028. St. John said Hawaii demand was recovering, with bookings and fares from September onward beginning to resemble the rest of Alaska's network. The outlook shows how unevenly the fuel shock is hitting U.S. airlines. Delta Air Lines reaffirmed its full-year forecast and United Airlines raised the lower end of its outlook despite the same fuel volatility. Ryan St. John, Alaska's vice president of finance, planning and investor relations, told Reuters that larger rivals' broader international networks and greater revenue from premium cabins and corporate travel made them better equipped to offset higher fuel costs, while Alaska is still building out those businesses. Alaska declined to reinstate its full-year outlook after withdrawing it in April and plans to update investors at an investor day in late September. "It's really hard to know where fuel is going to settle in the fourth quarter," St. John said. The spot price of U.S. jet fuel was $3.59 a gallon on Tuesday, according to an Argus index. St. John said fuel averaging about $4 per gallon would probably push Alaska's third-quarter earnings toward the bottom of its range. An average closer to $3.50 would move results toward the top, assuming revenue and other costs meet expectations. Alaska expects its economic fuel cost to average $3.75 per gallon in the third quarter, down from $4.43 in the previous quarter as refining margins ease.

Fuel costs cloud Alaska Air's outlook even as demand remains strong

Guidance falls short as fuel costs remain elevated

Demand remains strong despite Hawaii weakness and higher fuel costs

Airline says larger rivals are better positioned to absorb fuel volatility

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