US Airlines Cut Low-Profit Flights to Address High Fuel Costs
Executives from United Airlines, American Airlines, and Southwest Airlines stated at a Morgan Stanley investor conference that they will remove cheaper, lower-profit flights from their schedules in the last few months of this year to cope with rising fuel prices.
American Airlines indicated that fourth-quarter fuel prices are approximately $1 per gallon higher than the July assumption, resulting in an increase of about $1 billion in costs for the quarter; CFO Devon May noted that a 1-cent change per gallon equates to about $10 million per quarter. United Airlines CFO Michael Leskinen mentioned that some flights originally scheduled for December will no longer operate, and if fuel prices remain high, adjustments may continue into the first quarter of 2027 and beyond; he emphasized that they are not flying to maximize market share, but rather for profit and free cash flow.
Southwest Airlines CFO Tom Doxey stated that if fuel prices remain "higher for a longer time," the natural response would be to cut some capacity. The company had initially planned a capacity increase of about 2% to 3% in 2026, but this has been reduced by about half due to fuel prices, and they reported that fall revenues are better than expected, maintaining their third-quarter profit guidance. None of the three airlines disclosed specific routes that would be cut, but industry insiders suggest that the most likely candidates are low-cost, low-traffic flights with already thin margins.
Demand has not collapsed simultaneously. Leskinen stated that fourth-quarter bookings are "very strong," with both business and economy classes holding up; corporate travel is improving, but overall company travel volume is still about 4.5 percentage points lower than pre-pandemic levels. The consumer price index shows that from June to August, ticket prices were about 25% higher year-on-year. Airlines have already cut summer schedules and raised baggage fees this year.
Cost pressures are more pronounced. The four major U.S. airlines—United, Delta, American, and Southwest—saw fuel expenditures increase by nearly 80% year-on-year from April to June. United Airlines had previously reduced some off-peak and Chicago O'Hare capacity by about 5% in the second and third quarters, and projected that the additional fuel costs for the year could reach about $6 billion under high fuel price scenarios.
Market mechanisms indicate that capacity rationing is being used to protect ticket prices: they are selling business and holiday hub flights that can still pass on fuel costs, while cutting flights that become unprofitable as fuel prices rise, such as midweek overnight and low-fare point-to-point routes. Beneficiaries are the high-fare seats in hubs and airlines that have hedged some fuel costs; those under pressure are passengers in small cities relying on low-cost flights and low-cost capacity expansion plans that must manage the same fuel bills with fewer flights. When demand is strong, cutting flights is more cost-effective than lowering prices.
Additionally, American Airlines has not changed its stance on "continuing to adjust capacity," United Airlines has extended its adjustment window to 2027, and Southwest Airlines has indicated that it will first cut growth before discussing further reductions, suggesting that this round of adjustments is not a one-time winter tweak but rather a mid-term constraint due to high fuel prices.
Source: Public Information
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Airlines' first response to rising fuel prices is not to gamble with refineries, but to first eliminate marginal flights. This was practiced during the high fuel prices of 2022: protect hubs, cut off-peak flights, and raise ancillary fees. After the disruptions in the Strait of Hormuz in 2026 raised the four major airlines' second-quarter fuel bills by nearly 80% year-on-year, United Airlines adjusted its schedule in spring based on scenarios where oil prices exceeded $100. The Morgan Stanley conference merely communicated to investors that further cuts are forthcoming. Michael Leskinen's shift in focus from market share to free cash flow acknowledges that the seat-mile competition is currently unprofitable given the cost curve.
Money is being withdrawn from low-fare flights and redirected to flights that can charge baggage fees and sell premium cabins. American Airlines' additional $1 billion in fuel costs for the quarter is not achieved by flying more, but by flying less and removing loss-making flights from the equation. Southwest Airlines halving its annual growth from 2% to 3% rewrites its expansion budget into a survival budget. Hedging can only smooth out part of the costs; the remainder must be managed through scheduling. On the passenger side, a 25% year-on-year increase in ticket prices and fewer low-cost options are shifting the fuel bill onto consumers.
This is the same set of tools used in 2008 when oil prices peaked, leading network carriers to shrink regional routes, and in 2020 when airlines exchanged capacity for pricing power; the trigger has now shifted to the Strait and war premiums. The industry phase is characterized by "demand still exists, but the circle of operable flights is shrinking": Delta and United Airlines buffer through premium cabins, while Southwest Airlines and point-to-point low-cost networks are the first to feel the growth ceiling. JetBlue's concurrent capacity guidance reduction indicates that mid-sized carriers are also lining up in the same direction.
Structurally, pricing power is shifting back from capacity expansion to the cost curve. As fuel prices raise the breakeven point for each route, market share is no longer an asset; idle slots actually retain value. The mechanism is that while fixed costs for aircraft are high, fuel is the steepest variable cost; when variable costs consume the contributions from low fares, the optimal solution is not to lower prices to attract customers, but to keep planes on fewer, more expensive flights, turning scarcity into ticket prices.
ABAB News · Law of Cognition
- When fuel prices rise, the first to go are cheap seats.
- Demand still exists, but that doesn't mean every route should operate.
- Cutting capacity is making way for ticket prices, not for passengers.