American CEO: Higher Fares to Come If Fuel Prices Stay High

American CEO: Higher Fares to Come If Fuel Prices Stay High

American CEO said higher fares were likely as the airline reported a drop in profits Thursday, citing higher fuel costs as a big drag even as first-quarter revenues hit a record on strong travel demand.

Net income fell 45.2 percent to $186 million, as revenues rose 5.9 percent to $10.4 billion, the AFP reported.

The airline cited Latin America as an especially vibrant market but said all its regions saw gains in a closely-watched benchmark of revenue per available seat miles.

US carriers have described the global air market as robust amid the strongest global economy since the 2008 financial crisis.

But American’s results were hit by a nearly 10 percent rise in operating expenses, driven by much higher fuel costs.

American Airlines executives said they were caught off guard by the rapid rise in jet fuel costs, which has accelerated just in the last few days. Based on pricing as of April 20, fuel will cost $2.3 billion, or 30 percent more in 2018 than last year, said Chief Financial Officer Derek Kerr.

Chief Executive Doug Parker said higher fuel costs could lead the company to reduce some flight capacity, but that such a move would not take place until after the summer travel season, a peak period for demand.

Parker predicted higher customer fares if there was a “new normal” of higher energy costs, something that now looks more likely.

“As the cost of production goes up, the cost of the product generally follows,” Parker said. If fuel prices stay high, “I would expect you would see higher fares to consumers over time.”

Domestic-focused US carrier Southwest Airlines reported a 36.6 percent jump in first-quarter earnings to $463 million, due in part to a lower tax rate following December’s corporate tax cuts.

Southwest also won record first-quarter revenues, which came in at $4.9 billion, up 1.9 percent.

Fuel costs rose 6.5 percent to $1.0 billion. Southwest said second-quarter fuel costs are projected at $2.20 per gallon, up 10.6 percent from the year-ago period.

American Airlines shares tumbled 5.4 percent to $42.82 in late-morning trading, while Southwest Airlines fell 2.9 percent to $52.25.

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