Delta and United resist Middle East fuel shock with pricing power
Delta and United Airlines protected their earnings outlooks from a severe jet fuel spike by leveraging pricing power and premium cabin demand, leaving both stocks in value territory.
Delta Air Lines and United Airlines have successfully navigated a severe second-quarter jet fuel shock, with Delta affirming its forecast and United actually raising its earnings outlook. The resilience demonstrated by both carriers signals robust underlying demand, even as Middle East hostilities disrupted global energy markets.
The quarter's financial strain was almost entirely tied to energy. Disruptions to crude oil and jet fuel flows through the Strait of Hormuz pushed crack spreads dramatically higher. For both Delta and United, the overwhelming majority of their second-quarter operating expense increases were driven by these elevated fuel costs, resulting in deteriorating year-over-year operating income.
For investors, the significance lies in how the carriers managed the squeeze. Rather than absorbing the hit passively, both airlines deployed commercial levers to protect margins. Management teams emphasized their ability to pass higher costs onto consumers through ticket price increases. They also cut unprofitable capacity and leaned heavily into premium cabin offerings and auxiliary services to drive higher revenue per passenger.
The forward-looking guidance, however, underscores that the fuel threat is far from over. Both companies are actively planning for significantly increased fuel costs in 2026. Delta projects its fuel bill will jump by $4 billion in 2026 compared to 2025, while United expects its fuel costs to be $6 billion higher than its original estimate going into the year.
These projections present a clear test for the pricing power both airlines showcased in the second quarter. If broader economic demand softens, the ability to continue cutting unprofitable routes and pushing premium products will be crucial to maintaining profitability against multi-billion-dollar cost headwinds. Executives will need to balance capacity discipline with the risk of surrendering market share.
Despite the ominous cost trajectory, the immediate market reaction has centered on valuation. Both carriers remain highly profitable entities. Additionally, it is not guaranteed that crude and jet fuel prices will remain at their current elevated levels. The combination of defended earnings guidance, proven ability to offset input inflation, and potential commodity relief has left both airline stocks trading in value territory.
