U.S. airline stocks posted strong gains Wednesday, climbing between 3% and 7%, after crude oil prices dropped to their lowest levels since before the Iran war began — sparking optimism that financial pressure on the aviation industry could begin to ease.
The S&P 500 Passenger Airlines index surged as much as 5%, hitting an all-time high. Since its closing value on June 12 — the day before the U.S. and Iran announced a peace agreement — the index has climbed nearly 13%. By comparison, the broader S&P 500 has slipped 0.5% during that same stretch.
Brent crude futures dropped below $74 per barrel on Wednesday, as signals emerged that more oil tankers are preparing to move through the Strait of Hormuz — a critical waterway that handles roughly one-fifth of the world’s oil supply.
As oil supplies loosen and prices come down, airlines are positioned to save billions of dollars. During the Iran war, jet fuel costs climbed far faster than airlines were able to raise ticket prices. However, analysts caution that passengers are unlikely to see lower fares right away, given that available seating remains limited.
Morningstar analyst Nicolas Owens explained the timing challenge airlines face: “Sudden movements in fuel prices mean that in the near term the airline’s profitability can change (in the opposite direction of the fuel price) because they have already sold many tickets assuming the previous fuel cost.”
In a note published Tuesday, UBS said it sees the possibility that airlines’ third-quarter earnings per share could beat Wall Street forecasts — provided fuel prices continue to moderate.
Analysts also note that while all airlines stand to benefit from cheaper jet fuel, carriers with smaller fleets and fewer premium-class seats are likely to see bigger gains. Those airlines tend to have profit margins that are more vulnerable to fuel price swings, meaning they have more to recover.
Among individual carriers, Frontier and Southwest each rose 3%, while Delta gained 3.7% and JetBlue climbed 4.5%. Alaska Air and United both added roughly 6%, and American Airlines led the pack with a gain of about 7%.
Jet fuel prices had averaged around $85 to $90 per barrel before U.S.-Israeli strikes on Iran in February. Prices eventually peaked at more than $170 per barrel before retreating to an average of $119.17 in the week ending June 19, according to the International Air Transport Association.
Michael Ashley Schulman, a partner at Cerity Partners, said the oil price decline is only part of what’s driving optimism in the sector. “The drop in oil prices is part of the story but also the ending of the conflict with Iran means a resumption of industrial ventures that were put on hold and a corresponding increase in profitable business and holiday travel,” he said.
Shares of online travel companies, including Booking Holdings and Expedia, also climbed sharply Wednesday, rising between 7% and 10%.
