When an airline starts planning for oil at $175 a barrel, you know things are getting serious.
Scott Kirby, CEO of United Airlines, sent a letter to employees this week laying out the carrier's contingency plans for what he's calling "the biggest disruption to the airline industry since the COVID-19 pandemic." The culprit? The closure of the Strait of Hormuz by Iran, which has sent jet fuel prices soaring and forced airlines onto longer, more expensive routes.
Here are the numbers that should make investors sit up: jet fuel prices have more than doubled in three weeks. If current prices hold, United is looking at an additional $11 billion in annual fuel costs - enough to potentially wipe out most of the airline's profitability. For context, United's best-ever annual earnings were $5 billion. This year, they're staring at fuel bills north of $20 billion, compared to $11.4 billion last year.
United's response? Cut capacity by about 5 percentage points during peak periods. That means fewer red-eye flights, reduced service on Tuesdays, Wednesdays, and Saturdays, and trimmed schedules at their Chicago O'Hare hub. They've also suspended routes to Tel Aviv and Dubai. The company is betting it can restore full schedules by fall - assuming oil cooperates.
The broader story here is about sector rotation, and it's playing out exactly as you'd expect. Energy stocks are having a field day while airlines, cruise lines, and anything else that burns a lot of fuel is getting crushed. If you've been wondering why your airline stocks are tanking even as the S&P holds up, this is why.
But here's the thing Wall Street analysts aren't always emphasizing: this isn't just about airlines. Every industry that relies on transportation is taking a hit. Retailers, logistics companies, manufacturers with complex supply chains - they're all dealing with the same math. Higher fuel costs mean higher prices, which means squeezed margins or squeezed consumers. Pick your poison.
United's planning for oil to stay above $100 through the end of 2027. That's not a prediction - it's a worst-case scenario for internal planning. But the fact that they're planning for it tells you how seriously they're taking this crisis. Other carriers like and are making similar moves.
