United Airlines expects a significant impact on its first-quarter financial results as fuel prices surge due to the escalating conflict involving Iran. CEO Scott Kirby said the airline could face a “meaningful” earnings hit, even though travel demand has remained relatively strong.
Speaking at a university event on Thursday, Kirby warned that if the conflict continues, the airline may also experience financial pressure during the second quarter. His comments were reported by CNBC.
Rising Fuel Prices Add Pressure on Airlines
Jet fuel prices have increased sharply in recent days, climbing roughly 15% over the past week. The surge comes as the ongoing conflict in the Middle East disrupts energy markets and adds uncertainty to global oil supply.
The situation has already had a major impact on aviation. More than 20,000 flights have reportedly been canceled due to the conflict, leaving thousands of passengers stranded worldwide.
Airline stocks reacted negatively to the news. Shares of United Airlines fell about 4.5% in morning trading on Friday. Other major U.S. carriers also declined, with American Airlines, Delta Air Lines, and Southwest Airlines dropping between 3% and 5%.
Airlines Face Limited Protection from Fuel Price Spikes
Unlike in previous decades, most U.S. airlines no longer hedge their fuel costs. Fuel hedging involves using financial contracts to protect against sudden increases in energy prices. However, the strategy can also lead to losses when fuel prices fall, locking airlines into higher costs.
Because of this shift away from hedging, airlines are more exposed to sudden price spikes in jet fuel.
Another challenge is that airlines cannot immediately offset rising fuel costs. Many airline tickets are sold weeks or even months in advance at fixed prices, meaning those fares do not account for the recent jump in fuel expenses.
As a result, airlines may need to absorb the higher fuel costs in the short term, which could squeeze profit margins until ticket prices adjust to reflect the new fuel environment.
Fuel Price Changes Have Major Financial Impact
Fuel expenses represent one of the largest costs for airlines. According to a filing with the U.S. Securities and Exchange Commission, a $1 change in the price of a barrel of jet fuel would alter United Airlines’ projected 2026 fuel expenses by approximately $116 million.
Given the current surge in fuel prices, analysts have already revised their earnings forecasts. TD Cowen estimates that United Airlines’ adjusted earnings per share for the first quarter could range between 5 cents and 22 cents.
This projection is significantly lower than the airline’s earlier forecast from January, when United expected first-quarter earnings of between $1 and $1.50 per share.
