This Airline Stock Is the Most at Risk From Higher Jet Fuel Prices as U.S.-Iran War Continues, Says Rothschild

Why It Matters

Rising jet‑fuel costs threaten American Airlines’ profitability and could pressure the broader U.S. airline sector, prompting investors to reassess earnings expectations.

Key Takeaways

• Rothschild downgrades American Airlines to neutral
• Price target cut to $12.5 from $17
• 10‑cent fuel rise could slash EPS by 25%
• Forecasts show negative earnings for 2026
• Shares down 19% YTD, 12% past 12 months

Pulse Analysis

The escalation of the U.S.–Iran war has injected fresh volatility into global oil markets, pushing jet‑fuel prices toward historic highs. Airlines operate on thin margins, and fuel typically accounts for 20‑30% of operating costs, making any abrupt price surge a direct hit to cash flow. While demand fundamentals for U.S. carriers remain solid, the cost side of the equation is now the dominant risk factor, prompting analysts to adjust earnings models and investors to scrutinize cost‑management strategies.

American Airlines stands out because its fleet composition and route network make it especially sensitive to fuel fluctuations. A 10‑cent per‑gallon increase translates into an estimated 25% drop in earnings per share, a metric that dwarfs the impact of other operational challenges. Compounding the issue are capacity imbalances in key hubs like Chicago and lingering exposure to Middle‑East routes, which together amplify the carrier’s cost burden. Rothschild’s revised price target of $12.5 reflects a cautious outlook, anticipating negative earnings for 2026 before a tentative rebound in 2027.

The broader implication for the airline industry is a potential re‑rating of valuation multiples as investors factor in sustained fuel‑price risk. Companies with more fuel‑efficient fleets or hedging programs may gain a relative advantage, while those with higher exposure could see share price compression. Market participants are likely to monitor geopolitical developments closely and may adjust portfolio allocations toward carriers demonstrating robust cost‑control measures and diversified revenue streams.