Stock prices for several large U.S. airlines slumped on Monday as crude oil surged, increasing concerns about operating costs tied to jet fuel. United Airlines (NASDAQ:UAL) led declines among carriers, falling 6% in trading. American Airlines (NASDAQ:AAL) slid 5%, Delta Air Lines (NYSE:DAL) dropped 4.5%, and Southwest Airlines (NYSE:LUV) eased 3.8% as investors moved away from businesses sensitive to higher oil prices.
Oil climbed about 20% early in the session, pushing benchmarks to their highest levels since July 2022. The rise coincided with an expansion of the U.S.-Israeli conflict with Iran, a development that prompted some major oil producers in the Middle East to reduce shipments and heightened worries about prolonged interruptions to shipping through the Strait of Hormuz.
Cruise operators were also hit hard by the market reaction. Carnival (NYSE:CCL) shares fell 7%, Royal Caribbean (NYSE:RCL) declined 6.6%, and Norwegian Cruise Line (NYSE:NCLH) lost 6% as investors priced in higher fuel bills and potential consequences for travel demand.
Deutsche Bank issued a stark warning on Friday about the implications of the price jump for the airline industry, calling it an "existential threat" to carriers. The bank highlighted past episodes of serious industry damage when fuel costs spiked and cautioned that, without swift relief, airlines could face severe operational disruptions. Analyst Michael Linenberg wrote in a note that "Absent near-term relief, airlines around the world could be forced to ground" thousands of aircraft as a result of the Iran war. He added that "Some of the industry’s financially weakest carriers could halt operations."
Analysts point out that while U.S. carriers are mostly insulated from direct travel disruptions occurring in the Middle East, they remain exposed to rising fuel costs because jet fuel can account for up to about 30% of their operating expenses. That dependency creates material indirect exposure to movements in crude prices and raises concern that elevated oil could persist if conflict in the region continues.
Summary
Airline and cruise stocks fell sharply after crude prices jumped about 20%, driven by an expansion of conflict involving the U.S., Israel, and Iran that has prompted supply cuts and shipping concerns through the Strait of Hormuz. Analysts warned of serious financial stress for carriers if fuel costs remain elevated.
Key points
- Major U.S. carriers saw share declines - UAL down 6%, AAL down 5%, DAL down 4.5%, LUV down 3.8%.
- Cruise lines also plunged - CCL down 7%, RCL down 6.6%, NCLH down 6%.
- Oil rose roughly 20%, reaching the highest levels since July 2022 amid broadened Mideast hostilities and supply reductions, increasing fears of shipping disruptions through the Strait of Hormuz.
Risks and uncertainties
- Sustained high crude prices could substantially increase jet fuel costs, which constitute as much as 30% of airlines' operating expenses - impacting airline profitability and operations.
- Ongoing conflict in the Middle East may keep shipping through the Strait of Hormuz disrupted, prolonging supply constraints and price pressure on fuel-sensitive sectors such as airlines and cruise operators.
- Financial strain could force some weaker carriers to suspend operations if relief in fuel prices does not materialize quickly, as flagged by analysts.