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(Reuters) – Shares of major U.S. airlines fell on Wednesday, after a disappointing fourth-quarter forecast from United Airlines a day earlier spooked investors and raised concerns rising costs are denting profits for carriers.
United’s shares were down as much as 8%, hitting their lowest in a year, dragging peers Delta Air Lines (NYSE:DAL), American Airlines (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV) down about 4% each.
On Tuesday, United forecast adjusted profit for the current quarter in the range of $1.50-$1.80 per share, well below analysts’ average expectations of $2.06, according to LSEG data, taking a hit from costs associated with higher jet fuel prices and expensive labor contracts.
Profits at U.S. carriers have come under pressure as jet fuel prices jumped during the July-September quarter on tighter crude oil supplies.
Last week, Delta narrowed its profit outlook for the full year to $6-$6.25 per share, from $6-$7 per share in July.
Meanwhile, a reduction in capacity due to the suspension of flights to Israel is also expected to add to United’s non-fuel costs, which are projected to be up as much as 5% in the quarter through December from a year earlier.
“Surging energy prices followed by the Israel-Hamas conflict were the primary culprits, two events that were not factored in anyone’s earnings models three months ago,” Deutsche Bank analysts wrote in a note.
Rising costs as well as signs of softening domestic travel demand have raised worries about the industry’s profitability, sparking a sell-off in airline stocks and prompting analysts to slash their earnings estimates.
Despite a rally in airline stocks this year, shares of United and Delta still trade about 4 and 5 times forward profit estimates, respectively, which is well below the S&P 500‘s 19.7 multiple.
“We are facing sizable headwinds with labor and expectation of a new flight attendant agreement and continued higher maintenance expense,” United Airlines Chief Financial Officer Michael Leskinen said during an earnings call on Wednesday.
