Spirit Airlines, American Airlines cut forecasts citing higher fuel costs

Spirit Airlines (SAVE) and American Airlines (AAL) shares are trading lower after cutting their forecasts, with both airlines citing higher fuel costs. Spirit Airlines also says promotional activity and decreasing demand are some of the reasons for its cut. They follow Southwest Airlines (LUV) and Alaska Air Group (ALK) which also recently warned of the financial impact of higher fuel costs.

Yahoo Finance Live discusses how demand and higher fuel costs are impacting the airline industry.

Video Transcript

BRAD SMITH: Also, we're tracking Spirit Airlines. Those shares are moving lower this morning by about 2.8% after cutting its forecast for the year. Spirit not the only one adjusting its forecast for the year. American Airlines, they also cited higher fuel costs for the change that is seeing shares down of American Airlines and Spirit here this morning.

Both of them are down on the day. But these announcements had started to roll out even earlier this month. Southwest and Alaska Airlines, they cut their third quarter forecast, as well. You're taking a look at both Southwest Airlines and Alaska Air also down here on the day by about 2% for both of those.

JULIE HYMAN: The numbers for Spirit Air, in particular, now, its third quarter operating margin, adjusted operating margin going to be dropping a drop of negative 14.5% to 15.5%. Previously, it had been negative 5.5% to 7.5%. So a huge decrease in that operating margin forecast. Part of it, indeed, put down to fuel costs here.

But the company says, also, during the last few weeks-- this is from the statement from Spirit-- the company has seen heightened promotional activity with steep discounting for travel booked for the second half of the third quarter through the pre-Thanksgiving travel period. They also talk about fuel prices. But Spirit, I don't know, about alone among the airlines. Most of them are blaming the high fuel prices. But Spirit is also talking about this promotional activity and a little bit of a decrease in demand.

This is something that investors have been asking questions about. When is demand going to start to weaken? So, at least, for the discount airline getting a little bit of a hint there.

BRAD SMITH: And for another discount airliner as well, Frontier Airlines, also saying in its statement today, in recent weeks, sales have been trending below historical seasonality patterns here. Additionally, they cited fuel prices for the quarter expected to average approximately $0.23 a gallon more than previously forecasted here.

So all of them essentially saying the same thing, especially on the low cost side, just to really spelling out where the demand environment, also is not favorable at the same time that they're being met with headwinds in the costs for their fuel expenses.

JULIE HYMAN: And those Frontier shares are down by 8% with the others here.