The ongoing war situation in the Middle East has intensified over the past couple of days, with U.S.-Israel joint strikes on Iran disrupting travel and transportation across the region. Major Gulf hubs, including Dubai, Doha and Abu Dhabi, have been forced to close or severely restrict operations, leading to the cancellation of more than 21,300 flights at seven major airports (as per Flightradar24 data cited in Investing.com). 

As governments scramble to evacuate stranded citizens and airlines reroute aircraft through narrow corridors, the airline industry is bearing a major brunt of the conflict—bringing airline stocks and, by extension, airline exchange-traded funds (ETFs) under renewed scrutiny from investors.

While the immediate impact on global carriers is palpable, the intrinsic link between global stability and aviation profitability necessitates a closer look at how war reshapes the industry's immediate financial health and whether there remain long-term recovery prospects, as explored below.

Airline Industry’s War Connection

The airline industry's vulnerability to geopolitical conflict operates through two primary channels: operational disruption and soaring operating costs. First, the closure of the Middle Eastern airspace has eliminated critical flight corridors between Europe and Asia, forcing carriers into longer, fuel-intensive routes. This operational complexity strains fleet utilization and crew scheduling while delaying cargo deliveries worth billions of dollars.

Second—and perhaps more consequentially—crude oil prices have surged roughly 21% over the past month (as per Trading Economics data) amid the widening conflict, directly threatening airline profit margins through higher jet fuel costs. This price surge was driven by an escalation in the U.S.-Israel war on Iran that caused major disruption to production and supplies, with Iran having blocked the Strait of Hormuz, through which one-fifth of the global oil supply passes.

With most U.S. carriers having abandoned fuel hedging strategies over the last decade, such oil supply disruption has left them fully exposed to price spikes. Delta Air Lines (DAL Quick QuoteDAL - Free Report) , for instance, faces approximately $40 million in additional annual fuel costs for every one-cent increase per gallon—meaning a 10% fuel price jump would add $1 billion to its 2026 expense (as per Third Bridge analyst Peter McNally’s estimate).

Several major U.S. airlines are already feeling the brunt of this war at the bourses, with shares of major U.S. carriers like United Airlines (UAL Quick QuoteUAL - Free Report) , American Airlines (AAL Quick QuoteAAL - Free Report) and DAL having slipped over the past couple of days. These declines reflect growing investor concern that elevated fuel expenses will squeeze second-quarter earnings of these carriers, particularly if the conflict persists and forces further cancellations or rerouting.

Room for Recovery & ETF Shield

Despite the grim near-term outlook, history suggests that airline stocks can recover once hostilities subside—but the path to profitability will depend on how quickly normal flight operations resume and whether oil prices retreat. Airlines with strong balance sheets and flexible route networks are best positioned to rebound. 

For investors, the challenge is timing this rebound without being caught in the bankruptcy risk of a single, over-leveraged carrier.

Against this backdrop, staying invested in an airline ETF can shield investors from the "idiosyncratic risk" of individual stocks. By diversifying across the industry, ETFs mitigate the damage if one specific airline suffers a catastrophic loss due to operational hiccups or poor hedging decisions, while still allowing capture of the eventual industry-wide upswing.

Airline ETFs in Focus

Considering the current situation, the following ETFs should come under a prudent investor’s attention:

U.S. Global Jets ETF (JETS Quick QuoteJETS - Free Report)

This fund, with net assets of $769.8 million, offers exposure to companies across the airline and manufacturing sectors worldwide. Its top three holdings are Southwest Airlines (LUV Quick QuoteLUV - Free Report) (approximately 13.33% weightage in the fund), UAL (10.31%) and DAL (10.20%). 

JETS has lost 2.3% year to date, but soared 14.5% over the past year. The fund charges 60 basis points (bps) as fees. 

MAX Airlines 3X Leveraged ETNs (JETU Quick QuoteJETU - Free Report)  

This fund provides exposure to stocks of U.S.-listed companies that have operations relating to the airline industry, including airlines and aircraft and aircraft parts manufacturers, and companies engaged in the businesses of air freight and logistics, aircraft leasing and airline and airport operations. Its top three holdings are RTX (9.55%), Honeywell International (9.43%) and GE Aerospace (9.29%). AAL holds the sixth spot in this fund with 8.50% weightage, UAL holds the eighth spot with 8.11% weightage, whereas DAL holds the ninth spot with 7.69% weightage. 

JETU has gained 14.4% year to date and risen 38.5% over the past year. The fund charges 95 bps as fees. 

iShares U.S. Transportation ETF (IYT Quick QuoteIYT - Free Report)

This fund, with net assets worth $1.23 billion, although not an exclusive airline ETF, offers exposure to 44 U.S. airline, railroad, and trucking companies. Its top three holdings are Union Pacific Corp. (16.35%), Uber Technologies (16.29%) and United Parcel Service (8.73%). UAL holds the eighth spot with 3.98% weightage, whereas DAL holds the ninth spot with 3.82% weightage. 

IYT has gained 9.5% year to date and risen 20.5% over the past year. The fund charges 38 bps as fees.