(Bloomberg) -- Airlines are sounding the alarm that the four hurricanes that hit the US in four months this year are taking a bite out of profits.
The impact on earnings shows that carriers' concerns about climate change are already materializing as storms, sea level rise and extreme heat interrupt operations and supply chains.
American Airlines Group Inc. faced disruptions from Hurricanes Debby and Helene this year. These storms and other issues reduced third-quarter earnings by $90 million for the airline’s third quarter, Chief Executive Officer Robert Isom said on a call with analysts last week.
Southwest Airlines Co. said last week that flight cancellations caused by Hurricane Milton will cut into fourth-quarter revenue by about a half percentage point and increase non-fuel costs by the same amount, both on a per-mile basis. JetBlue Airways Corp. said on Tuesday that it expects the hurricane to contribute to unit revenue and cost headwinds of about one percentage point each.
For United Airlines Holdings Inc., Hurricane Beryl's impact on Houston in early July helped increase non-fuel costs to fly each seat a mile — a gauge of efficiency — Chief Financial Officer Michael Leskinen said on a call with analysts earlier this year.
Other disasters worsened by climate change, like wildfires, have also impacted airlines. Hawaiian Holdings Inc. lost $25 million in revenue in the third quarter of last year from the 2023 Maui fires after a rapid decline in demand for travel to one of the airline’s biggest markets. A BloombergNEF analysis found that the fires contributed to a 56% drop in market capitalization for the stock, prior to Alaska Air Group Inc.’s announced acquisition.
The risks are hardly limited to the US; Porto Alegre, Brazil, saw its airport closed for nearly six months following deadly flooding worsened by climate change earlier this year, impacting airlines’ revenue. Investors in the aviation sector have become more concerned about increasingly severe weather over the past two to three years, said Helane Becker, an analyst at TD Cowen.
Airlines are concerned themselves, according to reports filed with CDP, a nonprofit that operates the largest independent environmental disclosure system for corporations. CDP saw 72 companies in the global air transport sector share climate-related information last year. Of airlines that reported risks, 45% had concerns about physical ones like extreme weather and sea level rise. Airports in extremely hot locations such as Phoenix also face issues such as damaged runways and grounded flights.
These climate risks can lead to increased delays, cancellations and infrastructure damage, impacting how many flights airlines can operate. Hurricanes in the Gulf of Mexico also threaten the jet fuel supply chain and increase price volatility. All told, physical climate risks could cost airlines around $7 billion over the next 10 to 30 years, said Simon Fischweicher, director of supply chain and reporter services for CDP North America.
But there hasn’t been much done to address these risks. “Most of the airlines just say, ‘we're concerned about it, we've been looking at it, we are worried about it … but we don't know what to do about it,’” Becker said.
“More frequent and severe weather-related disruptions are among the litany of uncontrollable factors that challenge operations today,” a spokesperson for the trade group Airlines for America said. They added that carriers won’t fly if it’s unsafe and that the group’s members use a number of tools to “proactively identify and assess the potential economic impacts of climate change.”
Many airlines are particularly vulnerable to climate change because a number of major US airports are located near the coast. The US National Oceanic and Atmospheric Administration identified airports serving San Francisco, Honolulu, New Orleans, Tampa, Miami, Washington, DC, New York and Philadelphia as particularly threatened by sea level rise.
“Being near the ocean was a reason cities got built there and then now it's the reason that they're at risk,” said Kelly Van Baalen, a project manager on sea level rise for Climate Central.
Just a foot of sea level rise would cause flooding at US airports that carried 26% of all passengers in 2019, according to a 2023 Brookings Institution analysis. With oceans expected to keep rising for decades to come, airlines and airports need to plan for increased flooding even as they work to reduce emissions.
“We have to both adapt to the sea level rise we have already caused and we have to limit how much will happen in the future so that it remains at adaptable levels,” Van Baalen said.
Airlines are also looking to reduce their own emissions, which account for around 2% of all greenhouse gas pollution annually. The industry aims to be net zero by 2050, though some investors question whether that is realistic given the high cost of sustainable aviation fuel and lack of sufficient infrastructure to produce it.
Ultimately, adaptation will be central to airlines continued operation, which will require airports to prepare for various climate impacts. Some are already by moving critical infrastructure to higher ground, and constructing seawalls, temporary flood barriers and drainage systems. For airports experiencing extreme heat, factoring in the need for longer runways and adapting other infrastructure for high temperatures is essential, according to guidelines from the United Nations’ International Civil Aviation Organization.
“Airlines don't operate in a vacuum, they rely on airports, they rely on functioning municipalities and the supply chains that deliver the goods and services that ultimately allow an airport and airline to function,” Fischweicher said. “As climate can and likely will disrupt those elements, airlines need to be thinking about all those risks and how they're managing them.”
--With assistance from Mary Schlangenstein.
©2024 Bloomberg L.P.