Airline stocks are under pressure Thursday as escalating tensions in the Middle East push oil prices to a seven-month high, heightening concerns over fuel costs and profit margins.
As the U.S. deploys another aircraft carrier to the region amid stalled nuclear talks with Iran, the potential for a U.S. strike against Tehran as soon as this weekend pushed the price of a barrel of crude oil up another $2 on Thursday.
For airlines, the 16% increase in the price of oil from the beginning of the year will undoubtedly be reflected in Q1 results. Fuel accounts for approximately 20% to 30% of an airline’s total operating expenses and can reach as much as 40% of total expenses during extended periods of high fuel costs, making it one of the airline sectors’ largest and most volatile expenses.
While carriers can offset much of this volatility through fuel hedging, they risk locking in elevated prices if geopolitical tensions ease and oil stabilizes, potentially leading to significant losses if they misjudge the longer-term trajectory of fuel costs.
Currently, shares of American Airlines (AAL), United Airlines (UAL), and Delta Air Lines (DAL) are all down more than 5%, JetBlue (JBLU) down 9%, and Alaska Air Group (ALK) shares are down 6%. Accordingly, the U.S. Global Jets ETF (JETS) is down 4%.