A carrier that blamed fuel costs for one guidance cut in July is now citing softer travel demand for a second one in August.
American Airlines trimmed its capacity guidance on August 21, its second reduction in as many months. The airline now expects fourth-quarter system capacity growth of 6.5%, down from a prior 7.6%, with domestic capacity growth cut by 110 basis points to 10.1% and November capacity growth reduced by 300 basis points. International routes saw some of the sharper cuts: trans-Atlantic capacity growth was lowered by 140 basis points to 1.8%, and Pan-Pacific capacity is now expected to shrink by 2.9%, a swing of 240 basis points from the prior plan. Shares fell about 1% on the day.
What makes this cut distinct from the one that preceded it is the stated cause. On July 23, American had warned of potential losses of up to 65 cents a share, attributing the pressure squarely to soaring jet fuel costs. This time, management pointed to a different problem: softer travel demand as consumers pull back on discretionary spending, compounding the fuel-cost pressure that airlines have been passing through to customers as higher fares.
Those are not the same problem. A fuel-cost issue is, in principle, a cost the airline can pass through or hedge against. A demand issue, layered on top of that same fuel pressure, is harder to manage by raising fares, since higher ticket prices are part of what is already dampening demand. Two guidance cuts inside a month, with the underlying explanation shifting from a cost problem to a demand problem, is a more difficult setup for the airline than either cut would suggest taken alone.