Updates share price in paragraph 8, adds comments from interview with CFO throughout

By Rajesh Kumar Singh and Nandan Mandayam

CHICAGO, July 23 (Reuters) - American Airlines AAL.O lowered its 2026 earnings forecast on Thursday, warning that a renewed surge in jet fuel costs could leave it around breakeven this year despite record revenue, higher fares and resilient travel demand.

The combined fuel expenses at Delta Air Lines DAL.N, United Airlines UAL.O, American, Southwest Airlines LUV.N and Alaska Air ALK.N were nearly $8 billion higher than the year-earlier period, compared with an increase of about $1.2 billion from this year's first quarter from the same timeframe a year earlier, according to a Reuters calculation.

American now expects full-year adjusted results to range from a loss of 65 cents per share to a profit of 65 cents, with breakeven at the midpoint.

Its previous forecast ranged from a loss of 40 cents to a profit of $1.10. Analysts on average expected a profit of 65 cents per share, according to LSEG data.

The fuel shock's effect on earnings has varied. But American's thinner margins and persistent profit gap with Delta and United leave it less room to absorb higher fuel costs, putting more pressure on Chief Executive Robert Isom's turnaround plan.

American has been rebuilding corporate travel, adding premium seats and leaning more heavily on its loyalty program. But its unions have pressed the board over lagging profitability, with some calling for a change in leadership.

At the beginning of July, American had expected stronger revenue to effectively offset all of the higher fuel costs projected for the second half, Chief Financial Officer Devon May told Reuters.

But expected fuel costs for the rest of 2026 have risen by nearly $1.6 billion since the beginning of July. The surge means the recovery rate is now "obviously not 100%," May said.

Shares were down about 8% in midday trade.

For this quarter, Delta maintained its annual earnings target and United raised the lower end of its forecast. Southwest lowered the floor of its outlook, while Alaska Air did not restore full-year guidance.

American expects unit revenue growth in the third and fourth quarters to exceed the second-quarter pace.

FUEL SHOCK TESTS TURNAROUND

In early July, American had expected full-year pretax earnings approaching $1.5 billion, about four times its 2025 result.

May said American would have raised its annual outlook had it issued guidance on July 10, when Delta reported. In the following week, American's projected fuel costs rose by $230 million for the third quarter and $550 million for the rest of the year.

Each one-cent increase in fuel prices adds about $46 million to American's annual fuel expense and flows largely to pretax earnings.

He said closing American's margin gap with Delta and United would take several years, but said its relative margin performance had improved in the first half and expected that progress to continue in the third quarter.

In the second quarter, fuel expense rose by more than $2.2 billion, or 83%, nearly matching the roughly $2.3 billion increase in revenue. Higher fares allowed American to recover almost half of the added fuel cost.

American expects third-quarter revenue to rise 16% to 19% but still projects an adjusted loss of 70 cents to 10 cents per share. Analysts had expected a profit of 28 cents.

It reported adjusted earnings of 15 cents per share, above analysts' estimate of 3 cents.