The fresh spike in jet fuel prices in July upended the profit guidance of U.S. airlines, whose management teams had to readjust earnings estimates for the year just days ahead of reporting second-quarter results.
The re-escalation in the Middle East earlier this month resulted in a 20% spike in jet fuel prices during the two weeks in which air carriers were reporting their April-June earnings and attempting to guide earnings for the third quarter and the rest of the year.
The extreme volatility in crude oil and consequently, jet fuel prices, has turned earnings projections into a kind of guesswork, depending on where jet fuel prices are on a given day. For five months, this has mostly depended on which oil chokepoint in the Middle East is currently closed to traffic, or if the U.S. Administration is trying to talk down oil prices.
The events of the past few months in the Middle East have rattled the earnings outlooks at all major U.S. airlines, whose fuel costs have spiked and upset the strong demand and revenue figures.
The Middle East crisis has shown how volatile jet fuel prices can upend earnings and profit projections at airlines as fuel costs are their second-highest expense after labor costs. Related: Oil Market's Glut Narrative Just Blew Up
The second-quarter earnings of United Airlines, American Airlines, and Southwest Airlines revealed spiking jet fuel costs and management struggling to forecast the effect of these costs on full-year earnings amid continued extreme volatility in international oil and fuel markets.
In the middle of July, United Airlines said it expects nearly $6 billion in added fuel expense for full-year 2026 compared to the expectation at the start of the year. In the second quarter, fuel expense jumped by $2.3 billion, or 84% year-over-year, although Q2 profit came in near the top end of guidance.
“During the quarter, United raised $3.7 billion in new liquidity in private bank transactions at attractive rates to provide low-cost insurance from geopolitical uncertainty and the possibility of an extreme spike in oil prices,” United said.
On the earnings call with analysts, which took place a week into the renewed hostilities in the Middle East, CEO Scott Kirby said, “At this time last week, I was planning to tell you that we had a good line of sight to growing earnings year-over-year based on what we expected our guidance to be at the time.”
American Airlines posted a second-quarter revenue of $16.7 billion, up 16.3% year over year, the highest quarterly revenue in company history, but noted that its fuel expense jumped by over $2.2 billion, or 83% from a year earlier. Given the recent increase in the cost of fuel, the company is now expecting full-year adjusted earnings per diluted share to be between a loss of $0.65 and earnings of $0.65. For the third quarter, American now sees a loss of between $0.10 and $0.70 per share, notably down from the analyst consensus forecast of $0.61 earnings per share.
American’s CFO Devon May told analysts on the Q2 earnings call that “Since the beginning of July, expected third quarter fuel expense has increased by more than $700 million for the quarter and nearly $1.6 billion for the remainder of the year. Even in the last week, our fuel forecast has increased $230 million in the third quarter and nearly $550 million for the remainder of the year.”
Southwest, for its part, last week reported consensus-beating earnings for the second quarter, despite a jump in fuel expenses by $900 million year-over-year. The higher fuel expense in the second quarter represented a $1.17 headwind to adjusted earnings per share (EPS), the airline said.
CFO Tom Doxey said on the earnings call, “As far as fuel, we don't guide fuel. I think this is a bit of a nuance here, but we give you a fuel estimate based on a certain day, and we say it's the forward curve as of that day.”
By Tsvatana Paraskova for Oilprice.com
