CHICAGO: When United Airlines CEO Scott Kirby wrote to employees about the oil price surge earlier this month, the most telling line was not about fuel bills or flight cuts. It was about opportunity.
If fuel prices stay elevated, he wrote, it could create a chance “to buy assets, absorb network changes, etc.” — the language of a carrier that expects rivals to stumble.
The latest price spike could become the first real financial stress test for US airlines since the pandemic, with weaker carriers more likely to shrink, borrow or absorb deeper losses while stronger rivals keep investing and gaining market share. In Europe and parts of Asia, the Iran war’s impact has already appeared in route disruptions, flight cuts and downgraded outlooks.
United is preparing for the worst. Kirby said the airline is modeling Brent oil as high as USD 175 a barrel and remaining above USD 100 through 2027. Brent was trading around $112 on Friday.
Under that scenario, United’s annual fuel bill would rise by roughly USD 11 billion — more than twice its best-ever annual profit.
Jet fuel was priced at USD 4.24 a gallon last Thursday, compared with USD 2.50 just before the first US-Israeli strikes on Iran, according to trade group Airlines for America.
Fuel accounts for about a quarter of airline operating costs, and airlines sell tickets weeks or months in advance, leaving them exposed when prices move faster than fares can follow.
Credit ratings agency Moody’s said low-cost and ultra-low-cost carriers would be hit hardest if fuel prices stay high, noting that JetBlue, Spirit and Frontier were already unprofitable last year before the latest spike.
Had Brent averaged $80 a barrel last year instead of $69, Moody’s said, operating profit across rated US airlines would have fallen by roughly half, to about $6 billion.
Delta Air Lines and United have the clearest ability to absorb a prolonged shock without abandoning strategy.
Moody’s said both carriers generated the highest operating margins among rated US airlines last year, while S&P Global Ratings said low leverage, strong liquidity and a higher share of premium revenue leave the two better positioned than peers to handle sustained fuel increases.
Beyond them, the outlook is less certain. American Airlines expects to end the March quarter with more than $10 billion in total available liquidity, but carries about $25 billion in long-term debt and says every 1-cent increase in jet fuel prices adds about $50 million to annual costs.
American said it had no further comment beyond remarks by CEO Robert Isom at a J.P. Morgan conference this month, where he said the fuel run-up had added about $400 million to first-quarter costs and that the airline would aim to offset it through higher revenue while remaining flexible on capacity.
Southwest Airlines has one of the sector’s stronger balance sheets, but Fitch said a prolonged fuel shock could pressure earnings and liquidity, potentially forcing tougher cash-allocation choices. Southwest declined to comment during its quiet period ahead of first-quarter results.
Alaska Air Group, which is integrating Hawaiian Airlines, told Reuters it had about $3 billion in liquidity and $18 billion in unencumbered assets, and said it had raised fares to offset higher fuel costs, had not cut capacity and was reviewing its cost structure.
If high fuel prices last, pressure is likely to build first at airlines where margins are already thin and turnarounds remain unfinished.