An American Airlines 787 is loaded with cargo at Philadelphia International Airport.
A growing number of companies are warning that a rise in fuel costs and employee pay increases will hurt profits this quarter.
Companies from aerospace manufacturers to package delivery giant UPS are digesting big new labor contracts. Meanwhile, unions from the auto industry to Hollywood are pushing for better pay. Airlines, whose biggest expenses are fuel and labor, are being hit particularly hard.
Delta Air Lines on Thursday cut its adjusted third-quarter profit forecast to $1.85 to $2.05 per share, from a previous forecast of $2.20 to $2.50. The carrier said it was paying more for fuel than expected, but also said maintenance costs were higher than expected.
U.S. jet fuel at major airports averaged $3.42 a gallon on Tuesday, up 38% from two months ago, according to Airlines for America, an industry group.
On Wednesday, American Airlines cut its profit forecast after revisions at Alaska Airlines and Southwest Airlines. American expects third-quarter adjusted earnings per share to be between 20 and 30 cents, down from an earlier forecast of up to 95 cents per share, citing more expensive fuel and a new pilot contract.
The company expects to record a $230 million expense for this new contract, which includes immediate increases of 21% for pilots and more than 46% increased compensation over the life of the four-year contract, including 401(k ) contributions, includes.
Elsewhere, unions from Detroit to Hollywood have pushed hard for pay raises, better benefits and schedules in new contracts. UPS and the Teamsters union, which represents about 340,000 of the package delivery company’s workers, reached a new labor agreement in July that includes pay raises for full- and part-time employees, narrowly avoiding a potential strike.
UPS employees ratified the agreement last month. By the end of the five-year contract, a driver could earn $170,000 in salary and benefits, the company said.
Earlier this week, the delivery giant detailed the costs associated with the deal, saying the resulting costs would increase at a compound annual growth rate of 3.3% over the next five years.
“The first year is costing more than we originally projected,” Brian Newman, UPS’s chief financial officer, said on an investor call this week. He said it will cost $500 million more than expected in the second half of 2023.
As of midday Thursday, the United Auto Workers and Detroit automakers unions still appeared far apart in negotiating new collective bargaining agreements and were planning “likely” strategic strikes at the companies after Thursday’s 11:59 p.m. ET deadline, the UAW said. President Shawn Fain on Wednesday evening. The union has sought a nearly 40% increase in hourly wages in new contracts, as well as a shortening of the 32-hour week and other improvements.
Other unions are also demanding higher compensation. The strikes by Hollywood writers and actors began in May and mid-July, respectively. Members called for better pay to reflect changing industry dynamics in the age of entertainment streaming.
American Airlines offered flight attendants an 11% raise from the contract start date and a 2% raise thereafter. But the Association of Professional Flight Attendants said the union wanted a 35% increase at the start of a new contract, followed by a 6% annual increase.
Unions have argued that workers did not receive pay rises during high inflation in recent years as the Covid pandemic derailed talks.
Strong travel demand has helped the largest airlines more than cover their higher expenses. However, some airlines are experiencing a drop in sales, especially at the beginning of a slower travel phase. Spirit Airlines said Wednesday that it expects a larger loss than previously forecast and lower revenue.
Frontier Airlines warned Wednesday that “sales in recent weeks have been below historical seasonality patterns” and forecast an adjusted loss for the quarter.
—CNBC’s Michael Wayland and Gabriel Cortes contributed to this article.
Source : www.cnbc.com