Rising jet fuel prices are weighing on airline stocks

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Airline stocks sold off on Monday as ground flights and a rise in crude oil prices raised concerns about shrinking profits from higher jet fuel costs.

Shares of Delta Air Lines ( DAL ) fell 5% before paring losses, while American Airlines ( AAL ) fell as much as 6% and United Airlines ( UAL ) fell 7%.

Investors factor in the $100-per-barrel cost of jet fuel, which accounts for a fifth to a quarter of airlines’ total costs. On Monday, oil prices rose above $110 a barrel for the first time since 2022 as traffic in the critical Strait of Hormuz was snarled in the wake of the Iran conflict.

The cost of jet fuel has risen to $1.75 per gallon in recent weeks, meaning major U.S. airlines could each face fuel costs of $1.5 billion or more per quarter, according to GasBuddy data.

“Across the three major airlines, that could translate to approximately $5 billion in additional costs,” Patrick DeHaan, GasBuddy’s head of petroleum analysis, said Monday.

“Airline prices are likely to rise in the coming months, even if oil prices begin to stabilize soon,” he said.

On Friday, United Airlines CEO Scott Kirby said the impact of higher fuel costs on airline fares “will probably start soon.”

U.S. airlines once fought against rising fuel costs by using derivatives but have largely abandoned the practice because it can become expensive as oil prices fall. Southwest ( LUV ), one of the industry’s most active oil hedgers, for example, has a strategy that expires in 2025.

Additionally, the Middle East conflict has already grounded more than 20,000 flights, stranding thousands of passengers.

European carrier Lufthansa ( LHA.DE ) fell about 5% on Monday, while British Airways and Aer Lingus parent company International Airlines Group ( IAG.L ) fell 3%. Air France-KLM ( AF.PA ) also fell 3%.

U.S. carriers were already facing disruptions earlier this year as major hurricanes canceled thousands of flights across the country.

Delta, American and United are all down 20% to 30% year-to-date. Domestic carriers Southwest ( LUV ), JetBlue ( JBLU ) and Alaska ( ALK ) Airlines are also down more than 30% in the one-month period.