Overview#
U.S. airline stocks experienced a downturn in pre-market trading on Thursday as oil prices surged past $100 a barrel. This spike followed attacks on two oil tankers in the northern Persian Gulf, which could significantly increase fuel costs for major airlines by nearly $5 billion in the upcoming quarter.
Impact on Airline Stocks#
Southwest Airlines led the decline, falling 2.7% to $40.73 after announcing it would end its fuel hedging program in 2025, leaving it vulnerable to fluctuating market prices. Other major airlines also saw drops: Delta Air Lines decreased by 2% to $57.97, United Airlines fell 2.2% to $88.73, and American Airlines dropped 2% to $10.82. European airline stocks faced even steeper losses, with declines ranging from 2.4% to 5.8%.
Rising Fuel Costs#
Jet fuel prices have surged by 15% in just one week, increasing by as much as $1.75 per gallon. This rise could add over $1.5 billion in quarterly fuel costs for each major U.S. airline. According to Patrick De Haan, head of petroleum analysis at GasBuddy, this could mean nearly $5 billion in additional expenses across the three largest U.S. airlines. As a result, airfares are expected to rise in the coming months, even if oil prices stabilize soon.
Future Earnings Concerns#
Analysts caution that if West Texas Intermediate (WTI) prices remain above $95 per barrel, major airlines may need to downgrade their earnings estimates for the second quarter by 5-10%. Airlines that do not hedge against fuel price increases, like Southwest, could face the most significant adjustments. Fuel costs typically represent 20-30% of an airline's operating expenses, making the industry particularly sensitive to fluctuations in oil prices. Additionally, operational disruptions due to the conflict have already led to over 20,000 flight cancellations, stranding thousands of passengers and adding to the financial strain on airlines.