An American Airlines plane flies over JetBlue and United Express planes as it lands at Reagan National Airport in Arlington, Virginia, U.S., January 24, 2022. REUTERS/Joshua Roberts

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CHICAGO, April 12 (Reuters) – Major U.S. airlines are enjoying the strongest travel demand in three years, but investors will focus on how they ease rising inflationary pressures when they report quarterly results from Wednesday.

After a blow caused by the Omicron variant of the coronavirus, travel demand has exploded, with some airlines reporting the highest ticket sales in their history. Passenger traffic in the United States has averaged about 89% of pre-pandemic levels since mid-February, according to data from the Transportation Security Administration (TSA).

But jet fuel prices in North America have risen more than 30% in the past month since Western countries imposed sanctions on Russian exports. Carriers must also pay more to attract and retain talent in a tight labor market.

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American Airlines (AAL.O), which is due to report its first-quarter results on April 21, revised jet fuel spending estimates upward on Tuesday. Overall, it forecast costs for the quarter through March to be at least 16% higher than the corresponding period of 2019. Read more

The Texas-based carrier is expected to report a loss of $2.42 per share for the quarter, according to data from Refinitiv.

Soaring fuel prices have raised concerns among investors at a time when the airline industry has spent two years trying to recover from the downturn caused by COVID-19.

HIGHER RATES

Fuel is the industry’s second-largest expense after labor, but major US airlines don’t hedge against oil price volatility like most European airlines.

Instead, they generally seek to offset fuel costs with higher fares. Airline fares rose about 24% year-on-year in March, among the main contributors to the rise in consumer prices in the United States.

United Airlines Holdings (UAL.O) said it passes most of the extra fuel costs on to customers. Its average fares are up more than 100% from a year ago, according to data from Cowen.

Delta Air Lines Inc , which will report quarterly results on Wednesday, said last month it needed to raise ticket prices by about 10% each way to cover fuel costs. Read more

Historically, the U.S. airline industry has offset about 60% of swings in fuel spending with higher revenues, Barclays analysts wrote in a note. As a result, demand must remain strong for sustained profitability, analysts say.

Some worry that rising fares and rising inflation will reduce travel spending.

Jefferies analyst Sheila Kahyaoglu said consumers could hold back in the second half, making it harder for airlines to rebound to 2019 levels.

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Reporting by Rajesh Kumar Singh; Editing by David Gregorio

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