CHICAGO, Oct 19 - It should be the best of times for U.S. airlines with a travel boom still going strong, but investors are nervous demand may soften as the economy falters, making it harder to protect profits from soaring costs.
"It's really a demand-driven business" said Brian Mulberry, client portfolio manager at Zacks Investment Management."If there's less demand, then obviously less sales means less profitability." Falling ticket prices are raising questions as to how airlines will hedge against cost increases. Delta CEO Ed Bastian last week suggested the industry would be able to pass along increased operating costs to consumers.
While airlines have acknowledged the higher costs, including rising fuel prices, they say passenger revenue points to a healthy demand trend. Fuel and wage bills accounted for about 50% and 57% of operating costs in the third quarter at Delta and United, respectively. New labor contracts as well as the higher fuel prices mean cost pressures aren't going away.