U.S. and Asian Airlines Brace for Financial Pressure as Fuel Costs Surge

TLDR

• Jet fuel prices have risen from $2.50 to $4.24 per gallon since U.S.-Israeli strikes on Iran
• United Airlines is modeling Brent crude as high as $175 a barrel, which would add $11 billion to its annual fuel bill
• Low-cost carriers like JetBlue, Spirit, and Frontier were already unprofitable before the latest fuel spike
• Asian budget airlines are raising fares, cutting vendors, and adopting tech like Starlink to reduce costs
• Delta and United are seen as best positioned to weather the fuel shock; Spirit Airlines warns the spike could force liquidation

U.S. airlines are facing their toughest financial pressure since the pandemic as jet fuel prices surge following U.S.-Israeli strikes on Iran. The same crisis is hitting budget carriers across Asia, squeezing margins and forcing rapid cost cuts.

Jet fuel was priced at $4.24 a gallon as of last Thursday, up from $2.50 just before the Iran strikes, according to Airlines for America. Brent crude was trading around $112 a barrel on Friday.

United Airlines CEO Scott Kirby told employees the airline is modeling Brent oil as high as $175 a barrel and staying above $100 through 2027. Under that scenario, United’s annual fuel bill would rise by roughly $11 billion — more than twice its best-ever annual profit.

United Airlines Holdings, Inc., UAL

Despite that, Kirby framed the situation as a potential opportunity, writing that high fuel prices could allow United to buy assets and absorb network changes as rivals struggle.

Fuel makes up about a quarter of airline operating costs. Airlines sell tickets weeks or months in advance, which means price spikes can hit long before fares can catch up.

Credit ratings agency Moody’s said low-cost and ultra-low-cost carriers would be hit hardest. JetBlue, Spirit, and Frontier were already posting losses before the spike. Moody’s estimated that if Brent had averaged $80 last year instead of $69, operating profit across rated U.S. airlines would have fallen by half.

Stronger Carriers Hold More Buffer

Delta and United generated the highest operating margins among rated U.S. airlines last year, according to Moody’s. S&P Global Ratings said both carriers have low debt levels, strong cash reserves, and a higher share of premium ticket revenue.

American Airlines enters the period with over $10 billion in available liquidity but carries around $25 billion in long-term debt. CEO Robert Isom said the fuel spike added about $400 million to first-quarter costs.

Southwest Airlines has a strong balance sheet but Fitch warned a long fuel shock could pressure earnings and liquidity. Alaska Air said it has $3 billion in liquidity and has raised fares to offset higher costs without cutting capacity.

JetBlue ended last year with $2.5 billion in liquidity and no fuel hedges. S&P said it is expected to burn cash this year before nearing breakeven in 2027. Frontier posted a net loss last year with only $874 million in liquidity.

Spirit Airlines, currently in bankruptcy, warned the fuel spike could derail creditor talks and force liquidation.

Asian Budget Carriers Adjust Routes and Costs

In Asia, budget airlines face similar pressure. SpiceJet said Middle East route disruptions are hitting its India-Dubai corridor hard, which runs 77 flights per week. India’s aviation sector outlook was cut to negative by ICRA on March 26, citing higher fuel prices and a weaker rupee.

Zipair Tokyo said its long-haul routes have avoided Middle East disruptions and demand remains strong. The airline added Starlink internet to its fleet to cut entertainment hardware costs and plans to double its fleet to over 20 aircraft by 2032.

SpiceJet’s tech subsidiary SpiceTech has cut around 80% of third-party technology vendors, reducing operating expenses while also selling services to other airlines.

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