Alaska Air withdraws full-year outlook as fuel costs surge

Investing.com -- Alaska Air Group withdrew its full-year guidance on Tuesday as surging jet fuel prices stemming from the Iran war threaten to weigh on second-quarter earnings, despite strong travel demand and higher fares.

The airline said jet fuel prices have swung between about $4.45 and $5.15 per gallon in the past week alone, making planning difficult. Alaska Air is currently recovering about one-third of the jump in fuel costs through fare increases, leaving a gap that is expected to pressure earnings in the June quarter.

Chief Executive Benito Minicucci said bookings have held steady despite sharp fare increases. Airfares in its core U.S. markets are up more than 20% from a year ago in recent weeks.

"Offsetting some of that pressure is a strong demand backdrop, with fare increases holding," Minicucci said on the company's earnings call.

The cost spike has been worsened by refining margins. Alaska Air said margins in Singapore jumped more than 400% in the first quarter, turning what is usually one of its cheapest sources of fuel into the most expensive and affecting about a fifth of its supply.

Despite that, the airline still sees Singapore as a key long-term advantage and is looking to increase the share of fuel it sources from there to as much as 30% to 40% over time, from about 20% now.

Demand remains strong across the business. Premium travel rose 8% in the first quarter, corporate travel was up 19%, and advance bookings from corporate customers are running nearly 30% higher, the airline said.

Alaska Air said it does not expect fuel supply disruptions across its network, but said the industry needs to address longer-term jet fuel supply issues on the U.S. West Coast, where pipeline and refining capacity remain limited.

United Airlines is scheduled to report first-quarter results later today, with Southwest Airline reporting on Wednesday and American Airlines reporting on Thursday.

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