What Happened?
Shares of global airline American Airlines (NASDAQ: AAL) jumped 7.1% in the afternoon session after U.S. West Texas Intermediate (WTI) crude futures fell below $70 per barrel for the first time since early March. Oil prices continued a steep decline, with WTI dropping 3% to $69.84 and Brent crude falling to $74. This marked the lowest level since before the Middle East conflict escalated in late February. Jet fuel is the second-largest operating expense for airlines, often accounting for 20-30% of total costs.
A sustained 3% drop in crude directly expands operating margins, provided passenger demand remains stable. Furthermore, the drop in oil prices acts as a catalyst for the broader travel sector, as lower fuel costs give airlines flexibility to stimulate demand through pricing without sacrificing profitability. However, risks remain if the drop in oil reflects a broader macroeconomic slowdown rather than just easing geopolitical tensions.
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What Is The Market Telling Us
American Airlines’s shares are very volatile and have had 23 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 9 days ago when the stock gained 3.3% on the news that the Trump Administration announced a new peace deal that would lead to the reopening of the Strait of Hormuz, and potentially address the travel sector's most direct cost and the route disruption that had weighed on bookings since the blockade. Jet fuel costs had nearly doubled since hostilities started in late February. IATA estimated that at sustained oil prices, the industry's total fuel bill would reach $350 billion in 2026, up from $252 billion the year before. The relief was two-sided: airlines save immediately on fuel costs, and the reopening of trans-regional corridors, particularly routes linking Europe, South Asia, and the Gulf, is expected to restore booking demand that had been suppressed or rerouted for months.
American Airlines is up 11.5% since the beginning of the year, and at $17.26 per share, it has set a new 52-week high. Despite the year-to-date gain, investors who bought $1,000 worth of American Airlines’s shares 5 years ago would now be looking at only $772.08.
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