Analysis-US airlines favor higher fares over fuller planes as fuel costs squeeze profits

In the wake of soaring fuel costs, major US airlines are prioritizing higher fares over fuller planes, in a bid to safeguard their profits. This strategy has led to substantial revenue gains, as demand has remained strong despite hefty fare increases. However, these gains have not translated into greater profits, as jet fuel prices have surged by approximately 90% since the US-Israeli conflict in Iran began in February.

Several airlines, including Delta, United, American, Southwest, and Alaska Air Group, have emphasized protecting margins over boosting passenger volumes. The industry's growth plans may face a challenge in 2027, as increased capacity could intensify competition for passengers even as fuel prices remain high. American's CFO, Devon May, emphasized the need to continue pushing yields to make a profit.

As airlines prepare for the upcoming year, they are closely watching fuel prices and considering whether to slow down capacity expansion. While higher fares have not led to a decline in volumes, record revenues have not been sufficient to shield profits from the sharp fuel cost increases.