Fuel Bites Back: American Slashes Outlook as Southwest's Reinvention Pays Off

The great fuel reckoning arrived this week, and it landed unevenly.

American Airlines cut its full-year forecast on Thursday for the second time, telling investors it now expects anywhere from a 65-cent adjusted loss per share to a 65-cent gain. Shares fell roughly 8% in early trading. Revenue for the quarter climbed 16% to $16.74 billion and unit revenues rose 10%, but higher fares were not enough to swallow this year's fuel spike. Adjusted earnings came in at 15 cents a share.

Chief executive Robert Isom, who conceded last month that American is playing catch-up with Delta and United, told CNBC the carrier is "set up really well for 2027." That is a long horizon for investors watching the profit gap with rivals widen rather than close.

The contrast with Dallas was stark. Southwest Airlines reported Wednesday what it billed as its first full quarter with every element of its commercial overhaul in place, and the numbers made the case. Record operating revenue of $8.4 billion, up 16.4%. Adjusted earnings of 94 cents a share against consensus of 52 cents. Net income up 9.4% to $233 million. All of it delivered despite a 67% jump in the fuel bill to $2.22 billion, nearly $900 million more than a year earlier.

The abandonment of free checked bags and open seating, once heresy in Dallas, now looks like the thing keeping Southwest ahead of its fuel curve.

Not everything was clean. Southwest's third-quarter guidance of 50 to 75 cents undershot the 82 cents analysts wanted, and full-year guidance was trimmed from at least $4.00 to a range of $3.25 to $4.25.

The industry's underlying problem is unchanged. Fares are rising. Fuel is rising faster.