Earnings Season Struggles Continue for U.S. Airlines

As the largest U.S. airlines release their third-quarter earnings, it becomes clear that this earnings season is one for the history books. United Airlines (UAL) recently announced record-breaking revenue and profit in both the Atlantic and Pacific regions, following in the footsteps of Delta Air Lines (DAL). However, despite these impressive achievements, United's stock experienced a significant drop of 5.6% in premarket trading, making it the sharpest faller on the S&P 500.

Investors seem to be focused on more pressing matters rather than being captivated by the success of the summer travel season. United Airlines did not shy away from highlighting these concerns. One of the main challenges emphasized was the fourth quarter, which is expected to be especially difficult due to rising fuel prices and the cancellation of flights to Israel. The impact of the latter on earnings is significant – if services to Tel Aviv are suspended through October, United expects earnings per share of $1.80. If the suspension persists until year-end, earnings per share are projected to be $1.50. In either scenario, United's earnings would fall short of Wall Street's expectations of $2.05 per share.

Delta and American Airlines (AAL), who will release their earnings report on Thursday, also experienced a decline in their stock values by 1.6% ahead of the open market.

While disappointment in guidance adds to investor concern, United's exposure to Israel likely contributes significantly to its underperformance. Analyst Daniel McKenzie from Seaport Research estimates that Israel accounts for approximately 2% of United's total flying operations.

United Airlines Cuts Full-Year Earnings Forecast

United Airlines has cut its full-year earnings forecast due to the loss of flights to Israel. The company's CEO, McKenzie, stated that while the near-term outlook is rough, United remains a "great story longer term." He also mentioned that the fourth quarter environment is otherwise upbeat, with stable demand and strong close-in demand.

Impact of Israel-Hamas Conflict

Meanwhile, American Airlines is expected to report less severe impacts from the Israel-Hamas conflict compared to United in its upcoming earnings report. Analysts predict that the company will report earnings per share of 25 cents in the third quarter on revenue of $13.5 billion.

Delta Remains Confident

Delta Airlines President Glen Hauenstein expressed confidence in meeting its guidance range, even in a worst-case scenario related to Israel, during the company's recent earnings call.

Airlines Face Risks

All three airlines face risks associated with a prolonged conflict that could keep oil prices and jet fuel prices elevated. This risk is expected to affect the entire airline industry.

Outperforming the Industry

Despite these challenges, United, Delta, and American are well-positioned to outperform the rest of the U.S. airline industry due to their international exposure and ability to absorb higher costs.

It will be a tough end to the year for all three airlines, considering the strong start they had.