Airline stocks tumbled on Thursday, extending year-to-date losses, as soaring oil prices sparked concerns about shrinking profits.
Shares of US majors American Airlines (AAL) and United Airlines (UAL) dropped more than 3%, while Delta Air Lines (DAL) fell nearly 2%. Shares of regional carriers Alaska Air Group (ALK) and Southwest (LUV) also declined.
Jet fuel prices have surged more than 100% over the past month as the Middle East conflict disrupted energy supplies. With US crude futures (CL=F) and Brent (BZ=F) above $105 per barrel, jet fuel has experienced an outsized price increase.
“Asian refiners have had to cut utilization rates due to a lack of crude oil, further exacerbating the supply situation,” Andy Lipow, president of Lipow Oil Associates, told Yahoo Finance on Thursday.
“To top it off, refined product exports have been restricted by China, Korea, Thailand, and Pakistan,” he added.
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Wall Street analysts have noted heavyweights like Delta and United have the ability to raise fares without losing customers. But other carriers with much smaller margins are struggling to keep pace.
Unlike its competitors, Delta owns the Monroe Energy refinery in Pennsylvania, allowing the airline to produce its own jet fuel and capture refining profits. This setup helps Delta offset high costs during industrywide price fluctuations. Other carriers purchase fuel from third-party suppliers that often charge steep markups.
The industry anticipates a $400 million expense hit per carrier this quarter due to the Middle East conflict.
Last month, airline executives observed a surge in demand during the first two weeks of the war as travelers rushed to lock in airfares. After oil prices spiked following the conflict’s outbreak, United Airlines CEO Scott Kirby said the impact of higher fuel costs on airfare would “probably start quick.”
On Wednesday, BofA analysts noted that airline transaction counts and spend per transaction posted solid growth through mid-March, but have since cooled significantly.
Some of this may be seasonal: With an earlier Easter this year, the holiday travel surge eased by late March. The slowdown could also reflect rising fuel costs.
“It’s possible that some consumers might be delaying their travel plans, considering the recent rise in gas prices and airport staffing shortages,” said the note.
Fuel costs are the latest headwind facing airlines this year.
Carriers have already contended with prior challenges, including major storms that canceled thousands of flights and staffing shortages at airports, further frustrating travelers.