American Airlines’ top executive is predicting higher ticket prices on the horizon thanks in large part to increasing fuel costs.
MORE Airlines & Airports
During a recent telephone call with analysts and reporters, the airline’s CEO Doug Parker, said rising fuel costs are impacting airline profits and if the trend continues it will be consumers who ultimately pay the price.
“If indeed this is where fuel prices are going to stay, I would expect you would see higher fares to consumers over time,” Parker said, according to Associated Press.
The cost of fuel is the second largest expense for airlines, following labor. As a result, when fuel prices go up, ticket prices typically follow suit. At American Airlines, fuel prices are up 40 cents a gallon from one year ago, Associated Press reported.
The airline’s CEO also attributed a 45 percent drop in first-quarter profits to the increased fuel prices. American has slashed its earnings forecast for 2018, which triggered a six percent drop in its share price on the stock market to $42.56.
Although American has been working to phase out many older planes, which consume more gas, fuel spending has increased 26 percent. The airline used more than 1 billion gallons of gas in the first quarter, for which it paid an average of $2.10 per gallon, an increase from the 2017 price of $1.70 per gallon.
The airline said it would have saved $412 million if the fuel prices were still at early-2017 levels.
Parker said during the call this week that he does not believe fares will rise fast enough to dampen travel demand.
American made news this week on another front as well. The airline is facing a wrongful death lawsuit from the family of a woman who died after suffering a medical emergency during a flight two years ago.
The airline has also been dealing with negative publicity surrounding a warning issued by the National Association for the Advancement of Colored People (NAACP). Late last year the NAACP put out a national advisory warning African-Americans and other travelers about flying with American Airlines in wake of several incidents involving alleged discrimination.
