Southwest, JetBlue, and Other Airline Stocks Fall. A New Fear Is Emerging.

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Airline stocks were mixed early Wednesday as a number of major carriers warned of higher fuel costs.

It’s clear that the third quarter is still going to be a bumper one, or even a record one, for the airline industry. But investors now have another reason to be concerned about the sector, particularly as Labor Day marks the unofficial end of the peak summer travel season.

Southwest Airlines

(ticker: LUV) was the sharpest faller, declining 1.8%, after cutting its outlook for the third quarter. The low-cost carrier sees revenue per available seat mile falling between 5% and 7% from the same time last year, down from a previous range of 3% to 7% lower. 

The airline said fuel costs per gallon were now expected to be $2.70 to $2.80, from an earlier estimate of $2.55 to $2.65. Southwest added that the Labor Day holiday weekend was a record one for revenue performance, as travel demand proved to be strong. It’s still expecting record third quarter operating revenue. 

United Airlines

(UAL) also issued a warning over fuel costs, noting that jet fuel prices have risen more than 20% since the middle of July. It hiked fuel price estimates to between $2.95 and $3.05 a gallon–from a previous range of $2.50 to $2.80. 

However, United stuck to the revenue and cost guidance it issued in July, alongside its second-quarter earnings, pointing to a strong performance in the current quarter. The stock, which was lower in premarket trading, climbed 1.2% early in regular trading.

Alaska Air

(ALK) said higher fuel costs would hit margins, seeing pretax margins of 10% to 12%, down from 14% to 16%. It also tightened its revenue guidance, now expecting revenue to rise between 1% and 2% from last year versus an earlier range of 0% to 3%, citing canceled flights due to the wildfires in Maui.

The warnings affected general sentiment toward airline stocks. Southwest’s guidance cut appeared to impact other domestic carriers, more than the larger internationally-exposed airlines.

JetBlue Airways

(JBLU) stock fell 3.1%, while

Spirit Airlines

(SAVE) was 1.7% lower, and

Frontier Group

(ULCC) was 1.3% down.

Delta Air Lines

(DAL), rose 1%, while

American Airlines

(AAL) was 2% higher. Both airlines have yet to update on third quarter guidance.

Write to Callum Keown at callum.keown@barrons.com