By Rajesh Kumar Singh and Shivansh Tiwary
CHICAGO, April 21 (Reuters) - Alaska Air Group said on Tuesday strong travel demand and higher fares are helping offset a sharp rise in fuel costs, even as the airline pulled its full-year outlook and warned of a steep hit to second-quarter earnings.
A surge in jet fuel prices following the Iran war is becoming the airline industry's first real stress test since the pandemic, squeezing profits even as demand holds up. Airlines sell most of their seats months
in advance and cannot quickly raise prices, leaving them exposed when fuel costs jump.
Alaska said bookings have held steady despite sharp fare increases. Airfares in its core U.S. markets are up more than 20% from a year ago in recent weeks, supporting strong second-quarter revenue growth if trends hold.
"Offsetting some of that pressure is a strong demand backdrop, with fare increases holding," Chief Executive Benito Minicucci said on the company's earnings call.
Even so, higher fares are only covering part of the cost increase. Alaska said it is currently recovering about one-third of the jump in fuel costs, leaving a gap that is expected to weigh on earnings in the June quarter.
FUEL SURGE CLOUDS OUTLOOK
Fuel prices have also become highly unpredictable. The airline said prices have swung between about $4.45 and $5.15 per gallon in the past week alone, making it harder to plan and prompting it to pull its full-year guidance.
The cost spike has been worsened by refining margins. Alaska said margins in Singapore jumped more than 400% in the first quarter, turning what is usually one of its cheapest sources of fuel into the most expensive and affecting about a fifth of its supply.
Despite that, the airline still sees Singapore as a key long-term advantage. It is looking to increase the share of fuel it sources from there to as much as 30% to 40% over time, from about 20% now.
Demand remains strong across the business. Premium travel rose 8% in the first quarter, corporate travel was up 19%, and advance bookings from corporate customers are running nearly 30% higher, the airline said.
Alaska said it does not expect fuel supply disruptions across its network, but said the industry needs to address longer-term jet fuel supply issues on the U.S. West Coast, where pipeline and refining capacity remain limited.
The carrier said it had trimmed capacity in some markets to protect margins while continuing to invest in premium seating, international expansion and loyalty.
(Reporting by Rajesh Kumar Singh, Editing by Nick Zieminski)
