Airlines Face Tough Choice amid Iran Tensions: Raise Prices or Cut Capacity?

The ongoing U.S.-Iran war has led to a sharp jump in oil prices, with global oil benchmark Brent (CM:BZ) up 1.2% at $112.05 per barrel at the time of writing. This has forced airlines worldwide to raise ticket prices or even cut flights to handle rising jet fuel costs. Major U.S. air carriers such as United Airlines (UAL), American Airlines (AAL), and Delta (DAL) now face a tough choice: hike fares further and scare off budget travelers, or keep prices lower to maintain demand.

Experts describe it as a “perfect storm”: higher costs push prices up, but that might reduce demand as rising gasoline bills hurt household budgets. The situation also risks the global industry’s projected $41 billion profit for 2026, per the International Air Transport Association (IATA).

Airlines’ Smart Moves amid Fuel Spike

At a company event in Los Angeles last week, United Airlines CEO Scott Kirby warned that ticket prices could rise 20% this year due to soaring fuel costs. He added that customers are still booking flights despite airlines passing on these higher expenses. Delta and American Airlines both raised their Q1 revenue forecasts in mid-March, showing strong travel demand despite higher jet fuel costs.

Meanwhile, United’s planned 5% seat reduction saves cash on fuel and lifts yield by packing fewer fuller flights. However, downsides include revenue dips ($200-300 million for United), lost airport slots, and unhappy stranded passengers.

Airlines Struggle with Rising Fuel Prices

The current scenario marks the fourth major oil shock for airlines this century. This follows past crises like the 2007-2008 global financial crisis, the 2011 Arab Spring, and the 2022 Russia-Ukraine war. Airlines like United, Air New Zealand, and SAS have already cut capacity and added fuel surcharges to cope. Last year, global passenger traffic hit record highs, rising 9% above pre-pandemic levels. This gave airlines pricing power, but the current fuel spike is testing that resilience.

Low-cost carriers like Southwest Airlines (LUV) and JetBlue Airways (JBLU) are hit the hardest, as their customers are very price-sensitive and could switch to trains or buses for short trips. Meanwhile, premium airlines targeting business and wealthy flyers, like Delta and United, may fare better through fuel hedging (locking in prices ahead) and loyalty programs.

Which Is the Best Airline Stock According to Analysts?

Using TipRanks’ Stock Comparison Tool for Best Airline Stocks, we determined that analysts have a Strong Buy consensus on United Airlines and Delta Air Lines. Among them, UAL stock offers the highest upside potential of 53% over the next twelve months.