United and Southwest both posted record revenue, then cut their profit outlooks because jet fuel is eating the gains

Two of the largest U.S. airlines delivered the same message this week: demand is strong, fuel is the problem. United Airlines reported its results on October 20 and Southwest Airlines followed on October 21. Both set revenue records, and both lowered what they expect to earn.

What did United report?

United's third-quarter revenue rose 17.4% to a record $17.9 billion, and net income was $1.03 billion, according to the earnings release it filed with the SEC. Adjusted earnings fell to $2.54 a share from $2.78. Fuel expense jumped 61.6% to $4.84 billion at an average of $3.90 a gallon. For the fourth quarter, the airline guided adjusted earnings of $0.50 to $1.50 a share and said that range assumes fuel at about $4.80 a gallon, well above the roughly $4.35 its investor update says analysts had assumed. In July, United had guided full-year earnings of $9 to $11 a share.

What did Southwest report?

Southwest posted record quarterly revenue of $8.4 billion, up 21.2%, and net income of $270 million, its release said. Fuel averaged $3.92 a gallon, above the $3.70 to $3.75 the company had assumed, adding $821 million to costs. The airline now expects full-year adjusted earnings of $2.60 to $2.85 a share, down from the $3.25 to $4.25 it gave in July, and assumes about $4.55 a gallon in the fourth quarter.

What it means for travelers and businesses

When airlines are filling planes but losing margin to fuel, the usual responses are higher fares and tighter capacity on marginal routes. Our earlier look at holiday airfares at 10-year highs explains how to book around that. Businesses with travel budgets should assume fares stay elevated into the holidays.