The Fat Years for U.S. Airlines Are Coming to an End - Wall Street is Nervous
Costs are rising for the major U.S. carriers, and Wall Street is nervous.
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By By Justin Bachman - Bloomberg - Updated on October 30, 2017 13:41
America's passenger carriers have discovered that it's getting more expensive to run an airline these days.
While summertime profits were fine, and travel demand remains robust, a number of airlines are facing higher bills from a variety of factors: labor contracts, significant airport renovation projects, technology spending, and fleet upgrades. The increase in expenses is creeping into 2018 and threatens to spoil higher revenues just as executives are crowing about how they will keep fares up for the holidays.
Note the absence of the usual culprit in these matters—fuel. While it's pricier today relative to 2016, jet fuel expenses still represent roughly the same burden for all carriers (though spot prices have gained 24 percent over the past year). That's one reason investors typically exclude fuel from the industry's standard spending measure, cost per available seat mile.
The real issue causing investor angst is how much nonfuel costs will increase in 2018. As of April, the industry's four largest players were all operating under new contracts with their pilots and flight attendants.