US airline stocks have seen significant gains, with the S&P 500 Passenger Airlines index rising as much as 5% to an all-time high and increasing nearly 13% since June 12. This surge comes as Brent crude futures fell below the $74-a-barrel mark, reaching their lowest levels since before the Iran war. The broader S&P 500, in contrast, has dropped 0.5% during the same period. The fall in crude prices is attributed to signs of increased oil tanker movement out of the Strait of Hormuz, a critical conduit for a fifth of the world's oil supplies. Prior to US-Israeli strikes on Iran in February, jet fuel averaged $85 to $90 a barrel, peaked at over $170, and has since retreated to an average of $119.17 as of June 19.
This drop in fuel prices is expected to save airlines billions of dollars in costs, as the rise in jet fuel prices during the Iran war had previously outpaced fare growth. However, analysts caution that these savings are unlikely to be immediately passed on to passengers through lower fares due to tight capacity in the airline industry. Nicolas Owens, an analyst at Morningstar, noted that sudden movements in fuel prices can change an airline's profitability because many tickets were sold assuming previous fuel costs. UBS analysts anticipate that moderate fuel prices could lead to third-quarter earnings per share outperforming Wall Street expectations, with smaller fleets and airlines with a lower share of premium seats likely benefiting more due to their greater sensitivity to fuel-price fluctuations.
Individual airline stocks showed strong performance: Frontier and Southwest both rose 3%, Delta increased by 3.7%, and JetBlue saw a 4.5% gain. Alaska Air and United were up about 6% each, while American Airlines surged approximately 7%. The reopening of the Strait of Hormuz, following a peace agreement between the US and Iran, is also cited as contributing to the positive sentiment. Michael Ashley Schulman, a partner at Cerity Partners, suggested that the ending of the conflict signifies a resumption of industrial ventures and a corresponding increase in profitable business and holiday travel.
