Airlines' Upcoming Earnings 'Largely Irrelevant' as Investors Focus on Capacity, Fuel Costs, Morgan Stanley Says

02:12 PM EDT, 10/08/2026 (MT Newswires) -- Major US airlines' upcoming financial results are "largely irrelevant" as investors are likely to focus on how companies will tackle future capacity and cost pressures amid persistently high jet fuel prices, Morgan Stanley said in a note e-mailed Thursday. Airlines entered the third-quarter earnings season with expectations of strong revenue per available seat mile growth, proactive capacity reductions and jet fuel prices around $2 per gallon. However, fuel prices have climbed above $4, shifting investor attention to potential capacity cuts in the fourth quarter of 2026 and the first quarter of 2027, according to Morgan Stanley. "(Third-quarter) earnings are largely irrelevant, but prolonged energy price inflation could put 2027 capacity/CASMx at risk irrespective of yield traction," the brokerage said in a note to clients. CASMx is an airline unit-cost measure that excludes fuel expenses. Jet fuel's average price rose to $187.34 per barrel last week from $185.43 a week earlier, according to data published by the International Air Transport Association. Crude oil prices have moved higher for three straight months through September amid fears of prolonged global supply disruptions driven by the US-Iran conflict. "(Third-quarter earnings and fourth-quarter) guides from US airlines will likely be a tale of two messages: core demand resilience and continued RASM strength, offset by buffeting fuel headwinds," Morgan Stanley wrote. "The market will be hoping that the former is structural and the latter transitory." The brokerage cut its third-quarter per-share earnings estimates for Delta Air Lines (DAL), United Airlines (UAL), Alaska Air (ALK) and Southwest Airlines (LUV). It now expects American Airlines (AAL) and JetBlue Airways (JBLU) to report higher losses than previously projected. Delta Air is scheduled to report results Friday. Morgan Stanley expects investors to scrutinize capacity plans if jet fuel prices remain above $4 per gallon when most airlines report their third-quarter results in about two weeks, according to the note. "If fuel normalizes quickly, investors can dream again of possibly the strongest structural margins in recent industry history in 2027," the brokerage wrote. Last month, UBS Securities said US airlines likely face a "modestly favorable" setup heading into the next earnings season amid robust travel demand, though resurging fuel prices could weigh on the outlook. Price: 81.66, Change: -1.31, Percent Change: -1.58