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U.S. Airlines Gain Altitude Amid High Fuel Costs: 3 Stocks to Monitor
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Key Takeaways
Airline stocks rose as executives cited strong demand to offset fuel cost pressures.
Delta Air Lines raised its Q1 revenue growth outlook to high single digits on demand strength.
Southwest Airlines sees broad demand strength, with March set to be the top corporate travel month.
After witnessing a tumultuous period, due to the war between Iran and Israel, backed by the United States, airline stocks moved north on Tuesday. The buoyancy arose after airline executives expressed optimism about first-quarter demand trends, noting that strong demand is expected to help counterbalance the impact of rising fuel costs on profitability at the J.P. Morgan Industrials Conference on Tuesday.
Notably, shares of carriers like Delta Air Lines (DAL - Free Report) , American Airlines (AAL - Free Report) and Southwest Airlines (LUV - Free Report) shot up 6.6%, 3.5% and 2.2%, respectively. The handsome gains led to the 2.8% uptick in the NYSE ARCA Airline index yesterday. Amid this buoyancy, investors would do well to keep an eye on U.S.-based airline stocks like Southwest Airlines, SkyWest (SKYW - Free Report) and Sun Country Airlines Holdings (SNCY - Free Report) .
Surge in Fuel Costs: A Bane for Airlines’ Bottom Line
The ongoing conflict in the Middle East has resulted in a sharp jump in oil prices. As tensions escalated and spread into the neighboring countries, crude oil prices soared to as high as $120 a barrel, sending shockwaves worldwide. Traffic in the critical shipping route, the Strait of Hormuz (significant percentages of the world's total oil and liquefied natural gas pass through it daily), has been highly affected ever since the war began. This forced the International Energy Agency to release one of the largest oil reserves to stem the oil price volatility.
High fuel costs are naturally hurting the bottom line of airlines. This is because fuel expenses represent a key input cost for airlines. With most U.S. carriers having abandoned fuel hedging strategies, such an oil supply disruption has left them fully exposed to price spikes.
Airline booking Trends Still Showing Strength
At the JPM conference, airline executives sounded optimistic about airlines’ impending first-quarter 2026 results despite the sharp rise in jet fuel. Optimism arose from the strong booking trends, leading them to believe that the air-travel demand strength would, in all likelihood, offset the negative effects of high fuel costs.
The increasing ticket prices are likely to cover the double-digit increase in airlines’ key input costs. Airlines are also relying on capacity discipline-related measures, like discontinuing unprofitable flights and consolidating routes to counter the high fuel costs.
Revenue Strength Leads to Bullish Q1 Views
Driven by strong consumer and corporate demand, which accelerated in March, Delta raised its first-quarter revenue forecast while maintaining ???its earnings outlook. The Atlanta-based company, encouraged by the improving sales trend, reflecting all-round demand strength, now expects first-quarter revenue to grow at a high-single-digit percentage compared with its earlier forecast of 5% to 7%. Total revenue is now projected to be in the $15-$15.3 billion band.
With Delta being well-positioned to navigate the current volatile environment led by capacity flexibility, DAL maintained its earnings outlook (50-90 cents per share) for the March quarter.
Stronger-than-expected demand also led American Airlines to improve its revenue guidance for the first quarter. AAL now expects total revenue to grow more than 10% year over year, up from prior guidance of approximately 7% to 10%. This is the highest ever year-over-year quarterly revenue growth for AAL. Assuming jet fuel costs of approximately $2.75 per gallon for the quarter, the carrier now expects its first-quarter adjusted loss per share to be at the lower end of its previous guidance range of $0.10 to $0.50. Available seat miles (a measure of capacity) are now expected to increase in the 3-4% band on a year-over-year basis (the earlier guidance had called for a 3-5% increase). Non-fuel unit costs are now projected to increase in the 4-5% band on a year-over-year basis (the earlier guidance had called for a 3-5% increase).
Southwest Airlines also said that despite the high fuel costs, demand strength was broad-based, with March expected to be its biggest corporate travel month in history. It maintained its outlook for significant margin expansion and earnings growth in 2026.
3 Airline Stocks to Keep a Tab on
Despite the oil price volatility, air-travel demand remains upbeat. As a result, investors interested in the Zacks Transportation - Airline industry would do well to keep airline stocks on their radar for healthy gains.
Our Choices
Southwest Airlines is benefiting from its lean cost structure, expanding operations and strategic partnerships. Efforts to reward its shareholders also bode well. LUV no longer aggressively follows the practice of fuel hedging, having discontinued the practice last year. However, the low-cost carrier still has some hedging contracts. As a result, the negative impact of the Middle East conflict-induced fuel price increase is softer on the carrier than its U.S.-based peers. It now expects first-quarter fuel cost per gallon to be in the $2.35-$2.45 range (earlier guidance was in the $2.5-$2.6 band).
LUV has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters (missing on the other occasion), delivering an average surprise of 253.9%. Shares of LUV have gained more than 26% over the past six months. Southwest Airlines currently carries a Zacks Rank #3 (Hold).
SkyWest is benefiting from increased air travel demand and its associated fleet modernization initiatives. A solid balance sheet enables the regional carrier to reward shareholders with share repurchases consistently.
SkyWest is based in St. George, UT. The carrier’s resilient business model, whereby it has capacity purchase agreements with major carriers, minimizes its direct exposure to fuel price fluctuations. The company's earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters (missing on the other occasion), delivering an average surprise of 12.8%. SkyWest currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sun Country Airlines is a Minnesota-based low-cost carrier that offers flights across the United States and to destinations in Mexico, Central America, Canada, and the Caribbean. The carrier currently carries a Zacks Rank #2.
Shares of Sun Country Airlines have gained more than 30% over the past six months. The company's earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters (missing on the other occasion), delivering an average surprise of 9.5%.
Sun Country Airlines Holdings Price and EPS Surprise
View the Zacks #1 Rank List
Image: Bigstock
U.S. Airlines Gain Altitude Amid High Fuel Costs: 3 Stocks to Monitor
Key Takeaways
After witnessing a tumultuous period, due to the war between Iran and Israel, backed by the United States, airline stocks moved north on Tuesday. The buoyancy arose after airline executives expressed optimism about first-quarter demand trends, noting that strong demand is expected to help counterbalance the impact of rising fuel costs on profitability at the J.P. Morgan Industrials Conference on Tuesday.
Notably, shares of carriers like Delta Air Lines (DAL - Free Report) , American Airlines (AAL - Free Report) and Southwest Airlines (LUV - Free Report) shot up 6.6%, 3.5% and 2.2%, respectively. The handsome gains led to the 2.8% uptick in the NYSE ARCA Airline index yesterday. Amid this buoyancy, investors would do well to keep an eye on U.S.-based airline stocks like Southwest Airlines, SkyWest (SKYW - Free Report) and Sun Country Airlines Holdings (SNCY - Free Report) .
Surge in Fuel Costs: A Bane for Airlines’ Bottom Line
The ongoing conflict in the Middle East has resulted in a sharp jump in oil prices. As tensions escalated and spread into the neighboring countries, crude oil prices soared to as high as $120 a barrel, sending shockwaves worldwide. Traffic in the critical shipping route, the Strait of Hormuz (significant percentages of the world's total oil and liquefied natural gas pass through it daily), has been highly affected ever since the war began. This forced the International Energy Agency to release one of the largest oil reserves to stem the oil price volatility.
High fuel costs are naturally hurting the bottom line of airlines. This is because fuel expenses represent a key input cost for airlines. With most U.S. carriers having abandoned fuel hedging strategies, such an oil supply disruption has left them fully exposed to price spikes.
Airline booking Trends Still Showing Strength
At the JPM conference, airline executives sounded optimistic about airlines’ impending first-quarter 2026 results despite the sharp rise in jet fuel. Optimism arose from the strong booking trends, leading them to believe that the air-travel demand strength would, in all likelihood, offset the negative effects of high fuel costs.
The increasing ticket prices are likely to cover the double-digit increase in airlines’ key input costs. Airlines are also relying on capacity discipline-related measures, like discontinuing unprofitable flights and consolidating routes to counter the high fuel costs.
Revenue Strength Leads to Bullish Q1 Views
Driven by strong consumer and corporate demand, which accelerated in March, Delta raised its first-quarter revenue forecast while maintaining ???its earnings outlook. The Atlanta-based company, encouraged by the improving sales trend, reflecting all-round demand strength, now expects first-quarter revenue to grow at a high-single-digit percentage compared with its earlier forecast of 5% to 7%. Total revenue is now projected to be in the $15-$15.3 billion band.
With Delta being well-positioned to navigate the current volatile environment led by capacity flexibility, DAL maintained its earnings outlook (50-90 cents per share) for the March quarter.
Stronger-than-expected demand also led American Airlines to improve its revenue guidance for the first quarter. AAL now expects total revenue to grow more than 10% year over year, up from prior guidance of approximately 7% to 10%. This is the highest ever year-over-year quarterly revenue growth for AAL. Assuming jet fuel costs of approximately $2.75 per gallon for the quarter, the carrier now expects its first-quarter adjusted loss per share to be at the lower end of its previous guidance range of $0.10 to $0.50. Available seat miles (a measure of capacity) are now expected to increase in the 3-4% band on a year-over-year basis (the earlier guidance had called for a 3-5% increase). Non-fuel unit costs are now projected to increase in the 4-5% band on a year-over-year basis (the earlier guidance had called for a 3-5% increase).
Southwest Airlines also said that despite the high fuel costs, demand strength was broad-based, with March expected to be its biggest corporate travel month in history. It maintained its outlook for significant margin expansion and earnings growth in 2026.
3 Airline Stocks to Keep a Tab on
Despite the oil price volatility, air-travel demand remains upbeat. As a result, investors interested in the Zacks Transportation - Airline industry would do well to keep airline stocks on their radar for healthy gains.
Our Choices
Southwest Airlines is benefiting from its lean cost structure, expanding operations and strategic partnerships. Efforts to reward its shareholders also bode well. LUV no longer aggressively follows the practice of fuel hedging, having discontinued the practice last year. However, the low-cost carrier still has some hedging contracts. As a result, the negative impact of the Middle East conflict-induced fuel price increase is softer on the carrier than its U.S.-based peers. It now expects first-quarter fuel cost per gallon to be in the $2.35-$2.45 range (earlier guidance was in the $2.5-$2.6 band).
LUV has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters (missing on the other occasion), delivering an average surprise of 253.9%. Shares of LUV have gained more than 26% over the past six months. Southwest Airlines currently carries a Zacks Rank #3 (Hold).
Southwest Airlines Price and EPS Surprise
Southwest Airlines Co. price-eps-surprise | Southwest Airlines Co. Quote
SkyWest is benefiting from increased air travel demand and its associated fleet modernization initiatives. A solid balance sheet enables the regional carrier to reward shareholders with share repurchases consistently.
SkyWest is based in St. George, UT. The carrier’s resilient business model, whereby it has capacity purchase agreements with major carriers, minimizes its direct exposure to fuel price fluctuations. The company's earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters (missing on the other occasion), delivering an average surprise of 12.8%. SkyWest currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SkyWest Price and EPS Surprise
SkyWest, Inc. price-eps-surprise | SkyWest, Inc. Quote
Sun Country Airlines is a Minnesota-based low-cost carrier that offers flights across the United States and to destinations in Mexico, Central America, Canada, and the Caribbean. The carrier currently carries a Zacks Rank #2.
Shares of Sun Country Airlines have gained more than 30% over the past six months. The company's earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters (missing on the other occasion), delivering an average surprise of 9.5%.
Sun Country Airlines Holdings Price and EPS Surprise
Sun Country Airlines Holdings, price-eps-surprise | Sun Country Airlines Holdings, Quote