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Airlines are spooked about the sudden rise in fuel costs

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Southwest Airlines revealed concerns about softer August leisure bookings and joined two other major US airlines in issuing warnings regarding higher fuel costs anticipated in the third quarter due to a surge in crude oil prices.

The largest domestic carrier in the United States reported that August bookings fell within the lower end of its expectations, citing seasonal trends as one of the contributing factors. Nevertheless, the airline emphasized that overall leisure demand and yields remain robust.

In premarket trading, shares of Southwest declined by 4% before partially recovering to close down 2.6% at $29.97.

This announcement comes at a time when early indications suggest a weakening in domestic travel demand, with rising inflationary pressures impacting consumers. Meanwhile, airlines are facing challenges in retaining workers due to costly labor contracts.

United Airlines and Alaska Air Group have also voiced concerns about elevated fuel expenses in the current quarter, as crude oil prices recorded a third consecutive monthly increase in August, signaling a tightening supply.

In a regulatory filing, United Airlines noted that jet fuel prices have surged by over 20% since mid-July.

Regarding recent speculation, Southwest Airlines confirmed that it has no immediate plans to relocate its headquarters from Chicago to Denver, despite the purchase of 113 acres of land in Denver. The airline’s Finance Chief, Gerald Laderman, conveyed during the TD Cowen Transportation Conference that the primary focus is on expanding the flight training center in Denver.

Lower expectations

While Southwest maintains its outlook for a “solid (third-quarter) profit,” the airline has revised its expectations for revenue per available seat mile, a key indicator of pricing power, to a projected decline of 5% to 7%. This revision is compared to the previous forecast of a decline ranging from 3% to 7%.

Alaska Air anticipates a quarterly adjusted pre-tax margin of 10% to 12%, which is lower than the previously anticipated range of 14% to 16%.

It is important to note that most US airlines do not typically hedge against fuel costs, making them susceptible to the fluctuations in fuel prices.

Citi Research analyst Stephen Trent remarked, “The relatively quick up move in fuel has given the industry little time to respond through fares.”

[Keywords: Southwest Airlines, United Airlines, jet fuel costs, crude oil prices, domestic travel, labor contracts, revenue, headquarters relocation]

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Money

Bitcoin surges to record highs post-election

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Bitcoin soared to nearly $80,000, reaching unprecedented levels following Donald Trump’s decisive presidential victory earlier this week.

This marks a significant 65.4% increase from its January low of $38,505, underscoring the cryptocurrency’s remarkable growth this year.

The surge is largely attributed to President-elect Trump’s commitment to establishing the United States as “the crypto capital of the planet,” signaling a potential shift toward more favorable regulations for digital currencies.

Investors are optimistic that the incoming administration’s pro-crypto stance will further bolster the market, potentially leading to sustained growth in the sector.

Analysts suggest that this momentum could pave the way for Bitcoin to reach even higher valuations in the near future.

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Iron ore and oil prices drop as Beijing holds back

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China’s National People’s Congress announced a $1.3 trillion plan, but it’s focused on debt, not demand.

Mining giants BHP and Rio Tinto saw share prices fall as hopes for a strong stimulus faded.

Analysts say this “recycling debt plan” won’t deliver a boost for Australia’s resource exports.

Iron ore futures dropped 3%, and oil prices fell 2% after China’s announcement.

Some Australian economists see this as a missed opportunity for mining and the broader economy.

Beijing may wait for clarity on Trump’s trade policies before introducing more aggressive stimulus.

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Powell defends the Fed’s independence from Trump

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As Trump’s presidency approaches, Fed Chair Jerome Powell signals he won’t back down on protecting the central bank’s autonomy.

With the election results still rolling in, Federal Reserve Chair Jerome Powell has already made it clear that he intends to uphold the Fed’s independence, even if it means clashing with the new administration.

In a statement on Thursday, Powell declared he would not resign if President-elect Trump asked him to, asserting it would be illegal for any president to fire or demote a sitting Fed governor.

This stance comes amid signals from Trump’s team indicating they may seek influence over the Fed’s monetary policies, including interest rate decisions, challenging the longstanding norms that keep the Fed separate from politics.

Not stepping down

Powell’s terse response to questions on the issue emphasized his commitment: when asked if he would step down at Trump’s request, Powell replied simply, “No.” And when asked if the president could legally demote Fed governors, he affirmed, “not permitted under the law.”

Historically, Trump has shown impatience with Powell’s decisions, especially on interest rates.

If Trump tries to replace Powell or other Fed leaders prematurely, he could face legal challenges and market backlash.

Economists argue that an independent Fed actually benefits Trump’s agenda by stabilising rates.

 

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