Aviation Fuel Prices Soar in US as Middle East Conflict Threatens Airline Profitability
The US aviation industry is facing skyrocketing jet fuel costs as Middle East tensions resurface, following the collapse of a three-week "negotiate to agree" deal between the US and Iran. This has pushed Brent crude prices back above the $100 per barrel mark, creating significant pressure on airlines, forcing them to revise profit forecasts and potentially increasing airfare prices for consumers.
Background on Rising Fuel Costs
The US jet fuel market has tightened since March, though unlike Europe where supply shortages are expected within six weeks by April, there are no immediate concerns about fuel shortages in the United States. Despite Europe avoiding supply shortages, the global market has become increasingly tense with rising prices during peak summer travel demand season.
US exports of jet fuel, along with other fuel types including gasoline and diesel, reached record highs this month as refinery utilization increased while crude oil supply remained constrained at the Strait of Hormuz.
Impact on the US Fuel Market
The result is higher fuel costs, reducing airline profits and pushing airfare prices higher for consumers. Jet fuel inventories in the Western US region faced the most pressure in spring due to the region's greater dependence on imports compared to other PADD (Petroleum Administration for Defense Districts) regions.
In an unprecedented move, Southwest Airlines chartered a vessel to transport jet fuel from Houston to Los Angeles via the Panama Canal. "It carried enough fuel to supply the West Coast for a week at the time when supply was tightest... when the risk was highest," Southwest Airlines CFO Tom Doxey told CNBC this week.
| Details of Southwest's Fuel Shipment | Specifications |
|---|---|
| Fuel Quantity | 12.6 million gallons |
| Destination | Los Angeles |
| Arrival Time | End of May |
| Special Conditions | Trump administration waived Jones Act |
This fuel shipment was made possible through a waiver from the Trump administration of the Jones Act, temporarily suspending requirements that vessels transporting cargo between US ports be US-owned, US-flagged, and US-crewed. This waiver helped Southwest mitigate rising fuel prices on the West Coast.
Financial Impact on Major Airlines
In the two months following late May, conditions changed as oil and fuel prices decreased for about three weeks while the US-Iran memorandum of understanding was in effect. The collapse of the MoU and the end of the ceasefire pushed oil and fuel prices even higher, further increasing fuel costs for US airlines and forcing them to downwardly adjust profit expectations despite strong summer travel demand.
Fuel costs represent one of the largest expenses for airlines, and the recent two-week fuel price surge has prompted all US carriers to revise downward their 2026 profit forecasts.
| Airline | Fuel Cost Impact | Profit Forecast Adjustment |
|---|---|---|
| Southwest Airlines | $900 million increase year-over-year | Full-year 2026 EPS: $3.25-$4.25 (down from at least $4.00) |
| American Airlines | $2.2 billion increase (83% year-over-year) | Full-year 2026 EPS: loss of $0.65 to profit of $0.65 |
| United Airlines | $2.3 billion increase (84% year-over-year) | Full-year 2026 fuel costs: nearly $6 billion additional |
This week, Southwest reported better-than-expected Q2 profit but noted that fuel costs had increased by $900 million year-over-year. The higher fuel costs in Q2 represented a $1.17 headwind to adjusted EPS, the airline said.
For the full year 2026, Southwest now guides for adjusted EPS in the range of $3.25 to $4.25, down from the previous guidance of at least $4.00 EPS.
American Airlines reported Q2 revenue of $16.7 billion, up 16.3% year-over-year, a company record, but noted that fuel costs had increased by more than $2.2 billion, or 83% from a year earlier. Showing recent fuel cost increases, the company now expects full-year adjusted diluted EPS to be between a loss of $0.65 and a profit of $0.65. For Q3, American now expects to lose between $0.10 and $0.70 per share, notably down from the analyst consensus forecast of a $0.61 profit per share.
United Airlines last week said it expects fuel costs to increase by nearly $6 billion for the full year 2026 compared to expectations at the beginning of the year. In Q2, fuel costs increased by $2.3 billion, or 84% year-over-year, though Q2 profit was near the high end of guidance.
"During the quarter, United raised $3.7 billion in new cash through private bank transactions with attractive rates to secure low-cost protection from geopolitical instability and potential oil price spikes," United stated.
Future Outlook
Airfare prices are unlikely to decrease in the near term as airlines are absorbing billions of dollars in additional fuel costs amid rising oil prices and a tightening global jet fuel market due to Middle East conflicts.
Industry analysts suggest this situation could persist if regional tensions continue to escalate. Airlines are seeking multiple solutions to mitigate risks, including negotiating long-term fuel contracts, using market risk hedging instruments, and optimizing route networks to reduce fuel demand.
Nevertheless, consumers may face higher airfare prices in the coming period as airlines pass on some of the increased fuel costs to ticket prices.
In this context, the global aviation industry is closely monitoring political developments in the Middle East, as any further escalation could push oil prices even higher, adding more challenges to an industry already under pressure from the COVID-19 pandemic.