Airline stocks rocked as Israel-Hamas war fuels profit concerns

By Tomi Kilgore

Wall Street worries that airlines face the worst-case scenario of a prolonged Israel-Hamas war

Airline stocks were rocked Wednesday, as United Airlines Holdings Inc.'s profit warning due to the negative impact of the Israel-Hamas war cast a pall on investor sentiment.

The U.S. Global Jets ETF JETS descended 3.5% dive in midday trading toward the lowest close since Oct. 12, 2022. In comparison, the S&P 500 index SPX fell 0.8%.

The Dow Jones Transportation Average DJT, of which six of its 20 components are airline stocks, slid 388 points, or 2.6%.

A 1.7% jump in crude oil prices (CL.1), which stoked concerns over rising fuel costs, added to investor concerns.

United's stock (UAL) sank 8% after the air carrier beat third-quarter profit expectations but provided a downbeat fourth-quarter outlook, citing flight suspensions to Tel Aviv. The longer that the Israel-Hamas war lasts, the lower the expected profit.

The stock was also headed to one-year closing low and was in danger of the biggest one-day selloff in 16 months.

TD Cowen's Helane Becker is assuming the worst for United's fourth quarter.

"Given the projections that this will be a long war, we are looking at the lower end of the forecast range and assuming no service until at least year-end," Becker wrote in a note to clients.

Read: Blast kills hundreds at Gaza hospital; Hamas and Israel trade blame.

Of the legacy U.S. international airlines, Raymond James analyst Savanthi Syth said United had the most capacity exposure to Tel Aviv, at 1.8% of its total.

Delta Air Lines Inc. (DAL) was next at 1.2% and American Airlines Group Inc. (AAL) was at 0.4%. Delta's stock slumped 4.1% toward a five-month low and American shares dropped 4.9% toward a three-year low.

On Oct. 12, Delta President Glen Hauenstein said during the company's post-earnings conference call with analysts that its full-year guidance can be met even with the worst-case scenario in Israel.

Meanwhile, American is expected to report results on Thursday.

Among stocks of other air carriers, JetBlue Airways Corp.'s (JBLU) stock fell 3.9%; Southwest Airlines Co.'s (LUV) gave up 3.4%; Hawaiian Airlines parent Hawaiian Holdings Inc.'s (HA) declined 7.9%; Alaska Air Group Inc.'s (ALK) was down 4.2% and Spirit Airlines Inc. (SAVE) shares slipped 0.3%.

-Tomi Kilgore

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10-18-23 1208ET

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