Airline stock sink as the war in Iran sends oil and jet fuel prices surging

Airline stocks took a hit Monday as the U.S.-Israeli war against Iran sent the price of oil above $100 for the first time since 2022.

Air New Zealand was among the worst-hit airlines, falling more than 9.2%. Korean Air Lines wasn’t far behind, tumbling more than 8.5%. Air France-KLM saw stock sink 3.15%, and American airlines witnessed similar declines during pre-market trading.

"Absent near-term relief, airlines around the world could be forced to ground [​thousands] of aircraft while some of the industry's financially weakest carriers could halt operations," Deutsche Bank analysts wrote in a note seen by the Wall Street Journal.

Since the U.S.-Israeli war against Iran began on Feb. 28, airspace over the Middle East has been much trickier to navigate, leading airlines to have to take longer routes, cancel flights, and carry more fuel. UAE and Qatar-based airlines have resumed flights, but are operating at a much smaller scale. 

Deutsche Bank said the jet-fuel prices more than doubled this year. United CEO Scott Kirby said last week that passengers in the U.S. are likely to soon see the increased costs affect ticket prices. 

“If it continues we’ll feel it in Q2 also,” Kirby said, but added that he doesn’t expect domestic demand to be affected.

Subhas Menon, head of the Association of Asia Pacific Airlines, told Reuters, "If crude is rising 20%, jet fuel is rising several times more as it is even more scarce, adding significant cost to operations together with crew resources, which are stretched due to longer flying times when airspace is closed.”

Carlyle Group chief strategy officer Jeff Currie told Bloomberg he expects the war’s impact on the energy market to exceed that of the Russia-Ukraine war.

And it’s not just airlines that are feeling the war’s effects. On Monday, the major indexes tumbled more than 1% heading into the market open, with the S&P 500 down 1%, the Dow preparing to open down by 575 points, and Nasdaq $NDAQ futures off about 1.2%.

Much of the price increase is due to the closure of the Strait of Hormuz, the body of water south of Iran that separates the Persian Gulf and the Gulf of Oman and usually carries about 20% of the world's oil. 

JPMorgan $JPM Chase analyst Natasha Kaneva told The Wall Street Journal: “In the whole written history of the strait, it has never been closed, ever. To me, it was not just the worst-case scenario. It was an unthinkable scenario.”