Categories Analysis, Markets

Airlines take new flight path to deal with fuel costs

Airline companies are changing their plans to deal with the increase in fuel prices, including cuts in their international routes. American Airlines (AAL) said it is going to cut 11 routes in total by this year and early next year. The cuts mainly include two routes from Chicago to Shanghai and Beijing in China, along with routes to Ireland and Germany from other US cities.

Airlines cut routes to deal with fuel costs
(Image Courtesy: Pixabay)

The China routes were termed colossal loss-makers by American, which is also reducing the frequency of its flights from Chicago to Tokyo, Japan. These cuts are expected to help increase profits at Chicago. American, which is the largest airline in terms of revenue worldwide, is facing pressure on profits in general from hefty fuel costs.

American continues to operate flights to Beijing from California and Texas and has plans to add nine routes to Europe from four US cities, including Chicago. Hawaiian Airlines (HA) is also halting one of its routes to China due to slow demand.

Changes in Chinese aviation policies are expected to increase competition from Chinese carriers which is also likely to hurt US airlines

Higher fuel costs are hurting the profits of airlines companies overall. Several companies have been forced to change their plans for expansion while some have said they might have to increase ticket prices to cover costs. Changes in Chinese aviation policies are expected to increase competition from Chinese carriers which is also likely to hurt US airlines.

American Airlines reported a 30% decline in profits for its most recent quarter, while revenues – despite rising y-o-y – missed analyst expectations.

Delta Airlines Inc. (DAL) and United Continental Holdings (UAL) also reported decreases in profits for their most recent quarters. Higher costs hit Alaska Air Group (ALK) profits, leading to a drop of 34% in the second quarter.

American Airlines’ stock is down nearly 24% so far this year while Alaska Air Group’s shares have dropped 10%. United Airlines has seen its stock climb around 26% year to date while Delta Airlines has improved over 2%.

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