Airlines in bear market as oil poses ‘existential’ threat

Core Viewpoint - US airline stocks have entered a bear market due to rising fuel costs driven by the ongoing conflict in the Middle East, with the S&P Supercomposite Airlines Industry Index down over 22% from its recent peak [1][2]. Group 1: Market Impact - The S&P Supercomposite Airlines Industry Index closed down 4.1% on Friday, marking a six-day decline [1]. - The airline industry is experiencing a significant downturn, with a bear market defined by a decline of 20% or more from a peak [1]. - Analysts express concern that high fuel prices could persist as the conflict continues, posing an "existential threat" to airlines [2]. Group 2: Financial Implications - Jet fuel accounts for up to 30% of US airlines' operating costs, indicating substantial indirect exposure to rising fuel prices [5]. - Rothschild & Co. Redburn downgraded American Airlines Group Inc. to a hold-equivalent rating, anticipating losses for the carrier this year [6]. - Jefferies noted that a 5% change in fuel price estimates could impact Delta and United Airlines' earnings per share by 5% to 10%, while for American Airlines, it could represent a 35% impact [6]. Group 3: Operational Responses - Airlines may need to ground thousands of aircraft if fuel prices remain high, particularly affecting financially weaker carriers [3]. - US carriers are expected to raise ticket prices to mitigate fuel costs, with analysts suggesting that while profits may not be strong, losses could be contained [7]. - The US airline market is somewhat insulated from direct travel disruptions in the Middle East, which may help sustain demand [7]. Group 4: Broader Industry Effects - FedEx Corp. and United Parcel Service Inc., which rely on air-freight networks, also saw declines, indicating broader industry challenges [8]. - Operators of fuel-intensive cruise ships have also experienced a downturn in their stock performance [8].