Key Highlights

  • Jet fuel spot prices surged nearly 30% between July 2 and July 22 as the US-Iran ceasefire began to fray.
  • American Airlines cut its 2026 earnings forecast just 13 days after preparing to raise it, following a 1.6 billion dollar increase in its projected fuel bill.
  • American recovered nearly half of a 2.2 billion dollar year-over-year fuel expense increase through higher fares, while Delta recovered about 60% and United about 50%.
  • A 10-cent increase in American's average fuel price would add roughly 460 million dollars to annual expenses.

A Rapid Reversal Exposes a Structural Mismatch

A rapid rise in jet fuel prices is forcing US airlines to rewrite earnings expectations, exposing how quickly higher fuel costs can outpace revenue gains from otherwise strong travel demand. American Airlines was prepared to raise its 2026 earnings forecast earlier this month, but 13 days later, after its projected fuel bill for the rest of the year had risen by nearly 1.6 billion dollars, the airline cut its outlook instead.

The reversal reflects a fundamental mismatch in the airline business: fuel markets can move sharply within days, but fare increases take weeks or months to feed through since they apply only to tickets not yet sold. Strong demand and restrained capacity have allowed carriers to raise fares without hurting bookings, but higher ticket prices have offset only part of the increase in fuel costs, particularly as jet fuel spot prices surged nearly 30% between July 2 and July 22 as the US-Iran ceasefire began to fray.

American Faces the Steepest Swing Given Thinner Margins

American Chief Financial Officer Devon May said industry margins are likely to be effectively down as a result of the fuel spike, noting that had American guided on the same day as Delta, July 10, it would have been guiding earnings up for the year. In early July, the company had expected full-year pretax earnings approaching 1.5 billion dollars, about four times its 2025 result; instead, American lowered its full-year earnings forecast to a range stretching from a loss to a profit, with breakeven at the midpoint.

The stakes are particularly high for American given its thinner margins and persistent profit gap with Delta and United, leaving it less room to absorb higher fuel costs and intensifying scrutiny of efforts to rebuild corporate travel, add premium seats and generate more revenue from its loyalty program. American cut its outlook despite reporting record quarterly revenue and forecasting strong unit revenue growth for the second half, though if fuel remains elevated, weaker cash generation could slow debt reduction, constrain investment and increase pressure to trim less-profitable flying.

Carriers Diverge Based on Timing of Their Forecasts

Airlines have responded differently to the fuel surge, partly reflecting when their forecasts were issued. Delta, the first major US carrier to report, maintained its annual earnings outlook, while United raised the lower end of its forecast last week. This week, however, Southwest Airlines lowered the floor of its outlook and Alaska Air declined to restore full-year guidance, illustrating how quickly conditions shifted even within the same reporting season.

The forecasts were built on fuel assumptions from different dates, ranging from July 2 for Delta to July 21 for American, and over that period jet fuel spot prices rose 78 cents to 3.59 dollars a gallon, making outlooks issued only days apart difficult to compare and shortening their useful shelf life considerably.

Fare Recovery Rates Vary Widely Across Carriers

American said higher fares offset nearly half of a 2.2 billion dollar year-over-year increase in second-quarter fuel expense, while Delta recovered about 60% of its fuel increase and United recovered about 50%. Alaska said it recovered very little, and Southwest did not disclose a comparable percentage, underscoring meaningful variation in how effectively different carriers have been able to pass rising costs through to ticket prices.

May said American's projected fuel bill for the rest of the year rose by about 550 million dollars over the past week alone, noting that every one-cent increase in the airline's average fuel price adds about 46 million dollars to annual expense, meaning a 10-cent increase would cost roughly 460 million dollars. United Chief Executive Scott Kirby described a similarly abrupt shift, telling investors that a week earlier he had been planning to report good visibility into year-over-year earnings growth, but that fuel had risen sharply in the intervening days; United said the rise in fuel prices since July 1 added 575 million dollars to its expected third-quarter fuel bill and prompted a change in its guidance policy to use the latest available fuel prices. At Alaska, bookings for September and October remained as strong as summer demand, but the airline's earnings outlook remained highly sensitive to fuel prices, with a 25-cent change in average fuel cost capable of shifting quarterly earnings by about 50 cents per share.

Conclusion

The rapid swings in jet fuel prices tied to fraying Middle East ceasefire conditions have turned airline earnings guidance into an unusually short-lived exercise this quarter, with American's reversal from a planned raise to an outright cut illustrating just how quickly cost assumptions can become outdated. With fuel recovery rates varying significantly across carriers and forecasts now built on assumptions that may already be stale by the time they are published, the durability of any airline's guidance is likely to remain closely tied to how the underlying geopolitical situation evolves in the weeks ahead.