Introduction

Many companies are expressing concerns about the increasing cost of fuel and the impact of employee pay hikes on their profits for the current quarter.

From aerospace manufacturers to package delivery giant UPS, companies across various industries are grappling with major labor deals. Additionally, unions in sectors like the auto industry and Hollywood are demanding better compensation for their members. Airlines, heavily reliant on fuel and labor, are particularly affected by these factors.

Airline Industry Struggles

Delta Air Lines recently revised its earnings forecast for the third quarter, citing higher fuel costs and unexpected maintenance expenses. The company now expects adjusted earnings per share to be between $1.85 and $2.05, down from the previous estimate of $2.20 to $2.50.

According to Airlines for America, jet fuel prices at major airports have risen by 38% in the past two months, reaching an average of $3.42 per gallon.

American Airlines, Alaska Airlines, and Southwest Airlines have also adjusted their earnings forecasts due to expensive fuel and new labor agreements.

Labor Deals and Compensation

Labor unions, from Detroit to Hollywood, have been actively negotiating for better contracts, including higher wages, improved benefits, and more favorable schedules.

UPS and the Teamsters union recently reached a new labor deal that includes raises for both full-time and part-time workers. American Airlines offered flight attendants pay increases, but the Association of Professional Flight Attendants is pushing for higher raises.

The United Auto Workers and Detroit automakers are currently engaged in labor talks, but the negotiations appear to be at an impasse. Strikes at the companies are likely if an agreement is not reached by the deadline.

Financial Impact and Challenges

The new labor deals are resulting in increased expenses for companies. UPS expects costs associated with the recent agreement to grow at a compound annual growth rate of 3.3% over the next five years. American Airlines anticipates recognizing a $230 million expense for its new pilot labor deal.

Unions have been vocal about the lack of wage increases during the inflationary period of recent years caused by the Covid pandemic.

While strong travel demand has helped major airlines offset higher costs, some carriers, like Spirit Airlines and Frontier Airlines, are experiencing challenges in sales and forecasting losses for the quarter.