U.S. Carriers Slash 2026 Outlook as Iran Conflict Drives Jet Fuel Costs Past $100

U.S. airlines are confronting a severe financial headwind as the collapse of a U.S.-Iran ceasefire has reignited hostilities in the Middle East, sending Brent crude prices above $100 per barrel. The resumption of conflict has tightened global fuel markets and constrained supply at the Strait of Hormuz, resulting in soaring jet fuel costs for major carriers including Southwest, American, and United Airlines. These escalating expenses have prompted all three airlines to issue downward revisions to their full-year 2026 earnings guidance, despite strong summer travel demand.

The financial impact on carriers has been substantial. Southwest Airlines reported a $900 million year-on-year jump in fuel expenses for the second quarter of 2026, creating a $1.17 headwind to adjusted earnings per share. Consequently, the carrier lowered its full-year adjusted EPS guidance to a range of $3.25 to $4.25, down from previous expectations of at least $4.00. American Airlines saw its fuel costs surge by over $2.2 billion, an 83 per cent increase from the prior year, leading to a revised full-year adjusted earnings forecast ranging from a loss of $0.65 to earnings of $0.65. United Airlines indicated it expects nearly $6 billion in added fuel expense for the full year, with second-quarter fuel costs rising by $2.3 billion.

Supply stresses were particularly acute on the U.S. West Coast earlier in the year, where jet fuel stocks faced significant pressure due to reliance on imports. To mitigate these risks, Southwest Airlines chartered a vessel to transport approximately 12.6 million gallons of jet fuel from Houston to Los Angeles via the Panama Canal. This logistical move was facilitated by a Jones Act waiver granted by the Trump Administration, which temporarily suspended requirements for shipments between U.S. ports to be carried on U.S.-owned, flagged, and crewed vessels. The shipment arrived in late May, helping to stabilise supply during a period of peak seasonal demand.

Global market dynamics have further complicated the outlook. The International Energy Agency reported that global crude oil demand contracted by nearly 5 per cent in the second quarter of 2026, as soaring prices suppressed consumption. Meanwhile, U.S. jet fuel exports hit record highs this month as refining margins soared amid constrained crude supply. While Europe avoided the stockpile shortages initially feared, global markets tightened significantly, exacerbating price spikes during the summer holiday travel season.

In response to the geopolitical uncertainty and potential for extreme oil price spikes, United Airlines raised $3.7 billion in new liquidity through private bank transactions at attractive rates. As airlines absorb these billions in additional fuel costs, industry analysts expect airfares to remain elevated. The persistent tension between rising operational expenses and consumer pricing power suggests that the financial strain on the aviation sector will continue as long as supply constraints at key maritime chokepoints persist.