The Middle East conflict escalated again in July, causing jet fuel prices to surge 20% within two weeks. This coincided with a period when US airlines were releasing their second-quarter financial reports and updating their guidance. The volatile fuel costs forced United Airlines, American Airlines, and Southwest Airlines to collectively reassess their full-year profits. As fuel is the second-largest cost for airlines, price fluctuations directly impacted profit forecasts. Despite strong passenger demand and record revenues, soaring fuel expenses significantly eroded profits, leading many airlines to significantly lower their third-quarter and full-year profit outlooks. The industry struggles to predict fuel price movements and can only rely on daily forward exchange rates to dynamically calculate costs, significantly increasing operational uncertainty.

Trigger: Escalating geopolitical tensions in the Middle East caused a sharp short-term rise in jet fuel prices.

Tensions in the Middle East escalated again earlier this month, causing jet fuel prices to surge by 20% in two weeks. For the past five months, the price of jet fuel has been highly correlated with crude oil prices. News of Middle Eastern oil shipping route blockades and verbal intervention by the US in oil prices have led to extremely volatile price fluctuations. Jet fuel is the second largest expense for airlines after labor costs; a rapid increase in jet fuel prices can directly jeopardize existing profit forecasts. With major airlines currently in their second-quarter earnings reporting window, they have been forced to urgently revise their performance guidance.

United Airlines: Fuel costs have increased significantly, prompting it to raise funds in advance to hedge against risks.

United Airlines estimates that fuel costs for 2026 will increase by nearly $6 billion compared to initial expectations; fuel expenses in the second quarter increased by $2.3 billion year-on-year, a rise of 84%. Fortunately, the final profit for the second quarter was at the upper end of the guidance range. The company completed $3.7 billion in low-cost financing as a hedge against geopolitical risks and soaring oil prices. CEO Kirby admitted that before the conflict broke out, they were confident of profit growth, but the sudden geopolitical change completely altered their business expectations.

American Airlines: Record Revenue, Earnings Forecasts Significantly Lowered

American Airlines' second-quarter revenue reached $16.7 billion, a 16.3% year-over-year increase, setting a new record for single-quarter revenue. However, fuel costs increased by over $2.2 billion year-over-year, a rise of 83%. Impacted by oil prices, the company significantly lowered its profit forecast: the adjusted full-year earnings per share range was revised to a loss of $0.65 to a profit of $0.65; the third-quarter forecast shifted to a loss of $0.10–$0.70, a stark contrast to previous optimistic market expectations. The CFO disclosed that since July alone, estimated fuel expenses for the third quarter have increased by over $700 million, with nearly $1.6 billion expected for the remainder of the year, as continued fluctuations in oil prices have led to continuous upward revisions in cost estimates.

Southwest Airlines: Profits exceeded expectations, but jet fuel costs significantly dragged down EPS.

Southwest Airlines reported second-quarter results that beat market expectations, but fuel costs increased by $900 million year-over-year. The rising fuel prices put downward pressure on adjusted earnings per share by $1.17. Southwest Airlines has explicitly stated that it will not provide fixed fuel cost guidance, and the fuel cost estimates it discloses are only based on forward curves for specific dates; given the continued volatility of oil prices, long-term forecasts are not reliable.

Summarize

In summary, the Middle East conflict has driven up jet fuel prices, becoming the biggest negative factor for the US aviation industry. Strong travel demand has led to revenue growth, but it has been insufficient to offset the sharp rise in jet fuel costs, prompting leading airlines to collectively lower their profit forecasts. The continued wide fluctuations in crude oil and jet fuel prices driven by geopolitical events have rendered airlines' medium- to long-term cost calculations unstable. The aviation sector will remain under pressure in the short term, and its future performance will be highly dependent on the situation along Middle East air routes and changes in oil prices.