Only three airlines in the United States are able to stay profitable with oil prices at their present level

U.S. Airlines Face Financial Strain Amid Rising Oil Prices

Financial experts on Wall Street are cautioning that American airlines may encounter significant profit challenges as oil prices climb, fueled by intensifying tensions with Iran. Most U.S. airlines have moved away from fuel hedging in recent years, making them more vulnerable to abrupt price increases and raising doubts about their ability to remain profitable at current oil levels.

Fuel Hedging: A Key Strategy for Airlines and Oil Producers

Both airlines and oil companies often use hedging to protect themselves from unpredictable swings in oil prices. Airlines aim to stabilize their fuel expenses, while producers seek consistent revenue. Since fuel makes up at least 15% of airline operating costs, price volatility can have a major impact. By employing tools like futures, swaps, and options, airlines can secure fuel prices in advance and reduce the risk of sudden cost spikes. Typically, carriers hedge up to two-thirds of their anticipated fuel needs about six months ahead, with European airlines generally adopting more robust hedging practices.

Which U.S. Airlines Can Withstand High Fuel Costs?

UBS analyst Atul Maheswari points out that Delta Air Lines (NYSE:DAL), United Airlines (NYSE:UAL), and Southwest Airlines (NYSE:LUV) are capable of earning even modest profits if fuel prices stay at or above $4 per gallon. According to Maheswari, while these three may manage to remain profitable, other major airlines are expected to suffer losses under current oil price conditions.

Delta and United: Better Positioned Against Fuel Price Shocks

Delta and United are less affected by fuel price surges, largely due to their stronger operating margins. These airlines benefit from steady demand for premium travel, which helps them maintain profitability during periods of rising costs, unlike budget carriers. They are also more capable of passing increased fuel expenses onto customers through higher fares and surcharges. Delta owns the Monroe Energy refinery in Pennsylvania, which, while not directly shielding the company from crude oil price hikes, offers partial protection against the difference between crude oil and finished jet fuel prices.

Southwest Airlines: Strong Hedging and Efficiency Measures

Southwest Airlines, the largest low-cost carrier, has historically relied on aggressive fuel hedging to manage price fluctuations, though reports suggest it scaled back its hedging in 2025 when oil prices were lower. The airline’s comprehensive hedging program has delivered substantial savings since its adoption during the Great Recession.

Southwest’s Approach to Fuel Efficiency and Sustainability

Southwest also reduces fuel costs through a combination of a fuel-efficient fleet and operational improvements, along with the use of Sustainable Aviation Fuels (SAFs). Operating exclusively Boeing 737 aircraft lowers maintenance and training expenses, and the newer 737 MAX models are about 16% more efficient than previous versions. The airline’s focus on short, direct flights further enhances fuel efficiency. Southwest has also increased its use of SAFs made from renewable waste, reducing dependence on traditional jet fuel.

International Airlines: Aggressive Hedging, But Still Facing High Costs

European and Asian airlines generally hedge more extensively than their U.S. counterparts. For example, Air France-KLM (OTCPK:AFRAF) has hedged 87% of its fuel requirements, and Ryanair (NASDAQ:RYAAY) has covered 77%. Singapore Airlines (OTCPK:SINGY), Cathay Pacific (OTCPK:CPCAY), and Virgin Australia (OTCPK:VBHLF) also have strong hedging positions. However, these airlines are still facing elevated costs because their hedges are tied to Brent crude, which has not increased as quickly as the gap between crude oil and refined jet fuel.

Airline Stocks Under Pressure

Technical analysis of major airline benchmarks indicates that the recent decline in airline stocks is driven by factors beyond just rising fuel costs.

Analysts observe that airline shares continued to drop even as crude oil prices retreated, suggesting a break in long-term upward trends.

The JETS ETF has fallen below its 200-day moving average and key trend lines that have been intact since early 2025. Several factors contribute to this downturn. The ongoing conflict in the Middle East has led to widespread flight cancellations and costly rerouting for international airlines.

Additionally, concerns are growing that steep fare hikes to offset fuel expenses may dampen consumer demand, especially among budget-conscious travelers. Airlines across Asia, Europe, and Oceania have started raising ticket prices and adding fuel surcharges after jet fuel costs soared from about $85 to as much as $200 per barrel due to the escalating conflict.

Major carriers like United Airlines (NYSE:UAL) are also experiencing margin pressure from new labor agreements and inflation-driven wage increases. Cybersecurity has emerged as a significant risk for 2026, with the FAA introducing new regulations to address advanced AI-based threats.

Recent Performance of Airline Stocks

United Airlines shares have dropped nearly 21% in the past month, Delta is down about 17%, and American Airlines has declined over 25% during the same period.

By Alex Kimani for Oilprice.com

Top Articles from Oilprice.com

• Why $100 Oil Isn’t Going to Spark a New Shale Boom
• The Chokepoint Economy: What Happens When Everything Breaks at Once
• Gulf Producers Slash Oil Output by 5 Million Bpd

Get Ahead with Oilprice Intelligence

Oilprice Intelligence delivers market insights before they make headlines. This trusted analysis is relied upon by seasoned traders and political strategists. Subscribe for free, twice weekly, and stay informed about market movements ahead of the curve.

Receive geopolitical updates, exclusive inventory data, and insider market information that influences billions in assets. Plus, enjoy $389 worth of premium energy intelligence at no cost when you subscribe. Join over 400,000 readers—sign up now for instant access.