Airlines' Q2 earnings: Fuel costs become key focus

Major U.S. carriers American Airlines (AAL) and Southwest Airlines (LUV) will report their second-quarter results on Thursday, with analysts expecting contrasting bottom-line performances for both.

Southwest’s earnings are expected to jump nearly 21% to $0.52 per share, while that for American Airlines is seen declining by almost 95% to $0.05 per share.

On the revenue side, consensus is more aligned with LUV projected to report an 18.5% jump to $8.58B while AAL’s revenue is expected to improve by nearly 16% to $16.69B.

Impact of fuel costs

The airline industry continues to grapple with high fuel costs, becoming the major theme across their earnings. United Airlines (UAL) assumes $6B in fuel costs for FY26, the company showed in its Q2 print last week.

UAL shares suffered after it guided full-year and Q3 earnings below analysts’ estimates due to fuel costs.

Seeking Alpha analyst Wolf Report does not see Southwest significantly outperforming due to fuel volatility and no hedging against it. This margin pressure, the analyst believes, will offset most or all of the revenue growth.

They also see risks from “delays in new deliveries, sector-wide volatility due to labor shortage and pricing, forecast inaccuracy (LUV usually negatively misses its estimates), and shortages outside of LUV's control (air traffic controllers, etc.) also impacting things here.”

For American Airlines as well, fuel seems like the only thing standing between the company and improved profitability, according to Seeking Alpha analyst Sandpiper Investment Research.

In Q1, AAL guided continued improvement in the domestic entity, growth in corporate customer volumes, and the ability to partially recapture elevated fuel prices. It has assumed more than a $4 billion increase in expenses related to higher prices for jet fuel.

Over the last 2 years, LUV has beaten EPS estimates 75% of the time and has beaten revenue estimates 50% of the time, while AAL has beaten EPS estimates 88% of the time and has beaten revenue estimates 75% of the time.