TLDR
- United Airlines CEO Scott Kirby cautioned that skyrocketing jet fuel costs may significantly damage Q1 performance, with risks extending into Q2.
- Over the past week, jet fuel prices have surged 15ā20% amid escalating tensions involving Iran.
- Q1 adjusted EPS for United could plunge to 5ā22 cents versus prior guidance of $1ā$1.50 issued in January.
- Shares of UAL have declined approximately 10% since the conflict intensified, including a 3.6% drop in Friday’s premarket session.
- Geographic fuel pricing variations mean Alaska Air (ALK) faces the highest exposure, while JetBlue (JBLU) has the least vulnerability.
Scott Kirby, Chief Executive of United Airlines, indicated on Thursday that the dramatic increase in jet fuel costs could deliver a substantial blow to the company’s first-quarter financial performance, with potential ramifications extending into the second quarter if Middle East tensions persist.
United Airlines Holdings, Inc., UAL
Speaking at Harvard’s John A. Paulson School of Engineering and Applied Sciences, Kirby emphasized that while passenger demand continues to hold strong, the airline faces mounting pressure from fuel expenses.
The airline industry has witnessed jet fuel prices climb 15ā20% in just one week. This sharp increase represents a substantial challenge for carriers, considering fuel typically accounts for roughly one-third of operating expenses under normal circumstances, and can exceed 40% during periods of geopolitical turbulence.
Most airlines abandoned fuel hedging strategies years ago due to the complexity of hedging the differential between crude oil and refined gasoline prices. This decision leaves carriers completely vulnerable to the kind of volatile price movements witnessed recently.
Analysts at Citi Research point out that crack spreadsāthe difference between crude oil and refined fuel productsāhave experienced sharp and uneven movements. Singapore Jet fuel has jumped more than $3 per gallon in the past week, while NY Jet has increased just over $1.
Regional Exposure Matters
These geographic pricing disparities create varying levels of impact across different carriers. Alaska Air (ALK), with significant West Coast operations, faces the greatest exposure to Singapore-linked price increases. Conversely, JetBlue (JBLU), which operates predominantly from New York’s JFK airport, benefits from the more modest price movement in NY Jet fuel.
The entire airline sector has suffered losses. The U.S. Global Jets ETF has declined approximately 6% over five trading days, with forecasts indicating an additional 3% drop at Friday’s opening bell.
For United in particular, the financial implications are severe. TD Cowen has revised its Q1 adjusted earnings per share forecast for UAL to a range of 5 cents to 22 cents. This stands in stark contrast to United’s January guidance of $1 to $1.50 per shareārepresenting a dramatic shortfall if these lower projections materialize.
UAL Stock Under Pressure
Shares of UAL fell 3.6% during Friday’s premarket trading session. Since the Iran conflict began escalating, the stock has lost approximately 10% of its value through Thursday’s closing bell.
The geopolitical crisis has also triggered more than 20,000 flight cancellations worldwide, leaving thousands of travelers stranded and adding operational challenges beyond the financial strain on airline companies.
When contacted by Reuters for comment, United Airlines had not provided an immediate response.
Kirby’s remarks stand out as among the most explicit public statements from a major U.S. airline executive regarding the financial consequences stemming from the Middle East situation.
The revised earnings projections from TD Cowen, which incorporate current fuel price levels, provide the latest available insight into where United’s first-quarter performance may ultimately settle.
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