U.S. Airlines set to pocket $40bn as jet fuel prices crash

U.S. airlines stand to save billions in dollars on jet fuel costs after the US-Iran peace deal sent oil prices sharply lower.

Brent crude was trading at $79.22 per barrel on Monday, nearly $20/bbl lower after Washington and Tehran agreed to a ceasefire and committed to 60 days of negotiations, while jet fuel spot prices fell to $2.85 a gallon, down sharply from $4.88. 

The dip in fuel costs could slash the U.S. airline industry’s annual fuel bill by more than $40 billion, easing the pressure on carriers who were facing margins pressures and a painful earnings squeeze. 

The International Air Transport Association (IATA) previously warned that exploding fuel costs would halve global airline net profits in 2026 to $23 billion. 

However, unlike previous oil price downcycles, airlines are unlikely to pass on these cost savings to passengers in the form of lower air fares. 

According to Raymond James, average domestic airfares booked one week prior to travel were up 9% week-over-week and 34.1% from a year earlier as of June 8. 

In previous fuel cycles, dropping oil prices usually triggered capacity expansion that pushed fares lower; however, the current market is operating under different dynamics.

First off, jet fuel prices rose three times faster than ticket prices between January and May, slapping carriers with $100 billion in extra fuel costs after oil prices spiked amid the Iran war.

This implies that airlines are likely to use this windfall to stabilize their balance sheets.  Second, tight airport capacity, aircraft delivery delays and weaker low-cost carriers are likely to limit a broader domestic fare war. 

Global aircraft backlogs are currently at record highs, with deliveries lagging roughly 30% behind peak levels. Domestic airline capacity in the United States has largely stagnated, with current projections that airline seats will grow just 0.4%Y/Y in the third quarter, down from expectations of 4.6% growth before the war.