US Airlines: Fuel Price Spike Jeopardizes Profitability, Offsetting Some Benefit from Tax Deferrals

Fuel prices have spiked since March 6, as US-Israeli attacks on oil infrastructure in Iran threatened global petroleum supply. We updated our forecasts to reflect the impact of higher fuel costs through the second quarter, offsetting some of the benefit of long-term tax deferrals in our valuations.

Why it matters: Fuel accounts for around 20%-25% of airlines’ unit costs. For an airline averaging low-single-digit operating margins, unanticipated jumps in fuel prices, all else equal, could erase any profit because the company must refuel airplanes at a higher cost than anticipated when it sold the tickets.

The bottom line: We now expect fuel prices to remain elevated for some weeks and model an average kerosene price of $2.80 per gallon in the second quarter of 2026 for the US airlines we cover, up from previous estimates around $2.30. Given the abruptness of the price bump, we did not model offsetting increases in ticket yield in the same period.

• Separately, we reevaluated the likely longevity of tax deferrals the airlines will receive by booking accelerated depreciation against their equipment purchases, which resulted in meaningful increases to some of our fair value estimates, especially in the case of Delta and United, which book most of the industry’s profits.
• We increased our fair value estimate for Delta to $58 from $47, United to $127 from $98, and Southwest to $48 from $45, and we decreased our fair value estimate for American to $14.60 from $15.20, as its tax deferrals rely on operating loss carryforwards, which haven’t changed in our forecast.