US airlines are facing a significant challenge as jet fuel costs surge once again, following the resurgence of hostilities in the Middle East. The recent escalation of the conflict has led to a sharp increase in Brent crude oil prices, which have now surpassed $100 per barrel.
The US jet fuel market has been experiencing a tightening trend since March, although concerns about shortages have been limited to Europe, where stockpiles were expected to dwindle to six weeks’ worth in April. However, global markets have tightened, and prices have spiked amid peak seasonal demand during the summer holiday travel season.
US jet fuel exports, along with exports of other fuels such as gasoline and diesel, reached record highs this month as refining margins soared due to constrained crude supply at the Strait of Hormuz. As a result, fuel costs are spiking, depressing airline earnings and raising air fares for consumers.
Jet fuel stocks on the US West Coast were particularly under stress in the spring, as the region relies more heavily on imports than other Petroleum Administration for Defense Districts (PADDs). In response, Southwest Airlines took the unprecedented step of chartering a vessel to ship jet fuel from Houston to Los Angeles via the Panama Canal.
The shipment, which arrived in Los Angeles at the end of May, brought a week’s supply of jet fuel to the West Coast at a time when supply was most constricted. This move was made possible by the Trump Administration’s waiver of the Jones Act, which temporarily suspends the requirement that shipments between US ports be carried on a US-owned, flagged, and crewed ship.
Southwest Airlines’ chief financial officer, Tom Doxey, told CNBC that the shipment was a crucial step in addressing the tight supply situation on the West Coast. ‘It brought like a week’s supply to the West Coast at a time when supply was most constricted … when it was most at risk,’ Doxey said.
Since the end of May, a lot has happened, with oil and fuel prices easing for about three weeks during which the US-Iran memorandum of understanding held. However, the collapse of the MoU and the end of the ceasefire reignited the crude and fuel price rallies, further bloating airline fuel costs and forcing US air carriers to revise down their earnings expectations despite strong summer demand.
Fuel costs are one of the biggest expenses for airlines, and the fuel price rally in the past two weeks prompted all US carriers to adjust their 2026 earnings expectations lower. Southwest Airlines reported consensus-beating earnings for the second quarter, but noted that its fuel expenses jumped by $900 million year-over-year.
The higher fuel expense in the second quarter represented a $1.17 headwind to adjusted earnings per share (EPS), the airline said. For full-year 2026, Southwest is now guiding adjusted EPS to be in the range of $3.25 to $4.25, compared to its prior expectation of at least $4.00 EPS.
American Airlines posted a second-quarter revenue of $16.7 billion, up 16.3% year over year, the highest quarterly revenue in company history. However, the airline noted that its fuel expense jumped by over $2.2 billion, or 83% from a year earlier. Given the recent increase in the cost of fuel, the company is now expecting full-year adjusted earnings per diluted share to be between a loss of $0.65 and earnings of $0.65.
United Airlines last week said it expects nearly $6 billion in added fuel expense for full-year 2026 compared to the expectation at the start of the year. In the second quarter, fuel expense jumped by $2.3 billion, or 84% year-over-year, although Q2 profit came in near the top end of guidance.
