Airline stocks dive as oil-price spike could trigger a tipping point for travelers

By Tomi Kilgore

Demand for flights has been high, but higher fares and worries about spillovers from the Iran conflict could cause consumers to stay home

Airline stocks were set to continue their recent sharp selloff amid fears that travel demand will drop as the escalating Middle East conflict sends crude oil prices above $100 a barrel.

Airline stocks are taking another broad beating in early Monday trading as oil prices crossed briefly above $100 a barrel, stoking fears of lower profits and a drop in demand from cost-conscious travelers.

While analysts said there's still no sign that U.S. airlines are seeing and demand destruction, how long that can last as the Middle East conflict escalates is what's unnerving investors.

The sector has already had a pretty rough start to March, with the U.S. Global Jets ETF JETS dropping 10.9% last week as the Iran conflict raged. That marked the biggest weekly decline in 11 months. The ETF was down another 1.8% in recent midday trading on Monday, and was heading toward a seventh straight decline.

Read: Oil shatters $100 ceiling, hitting levels not seen since 2022 as Iran conflict escalates.

Among the larger air carriers, shares of American Airlines (AAL) slumped 2.7% toward a nine-month low, and have now tumbled 16.8% since the Iran conflict started.

United Airlines Holdings shares (UAL) shed 1.7% Monday, Delta Air Lines' stock (DAL) slipped 0.4% and shares of Southwest Airlines (LUV) were down 1%.

The problem is that the recent spike in oil prices can hurt airlines in several ways. First, it raises costs enough that they have to take action.

Also read: Here are the U.S. airlines most vulnerable to rising fuel prices.

As Deutsche Bank analyst Michael Linenberg noted in a recent note to clients, jet fuel prices have nearly doubled in a month. And, given the bank's latest industry forecast that calls for the U.S. airline industry to consume 20 billion gallons of jet fuel in 2026, the rise in fuel costs suggests a total headwind for the sector in the "$10s of billions" range on an annualized basis, Linenberg wrote.

The way to combat the higher fuel costs is to raise prices. Linenberg said that "a $10 across-the-board fare increase" held for a year could add about $7 billion to $8 billion to sales - but that still wouldn't be enough to cover the jump in fuel costs.

If there is a bright side to the current situation, Melius Research's Conor Cunningham said that it comes amid strong demand for travel and what appeared to be an accelerating U.S. economy.

"If ever there were a demand backdrop capable of absorbing higher fares, it is now," Cunningham wrote in a weekend note.

But how long consumers will bite the bullet is uncertain, especially since the surprisingly weak jobs data out last week raises uncertainty over how strong the U.S. economy really is, or how resilient consumers can continue to be. The sharp selloff in the stock market this month could also provide reason to pause spending plans.

There are also worries about what a lasting Middle East conflict will do to the psyche of travelers, especially those who were looking to travel overseas.

And there's still a growing problem with domestic travel, as the continued partial government shutdown has Transportation Security Administration employees working without pay, which is leading to long days at some major U.S. airports.

"The ultimate question is whether demand will worsen due to consumers tightening their spending patterns or becoming more hesitant to book," Cunningham wrote. "There is currently nothing to suggest that's the case today ... but the Iran conflict could prove to be the tipping point among numerous market headlines to date."

-Tomi Kilgore

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03-09-26 1259ET