Q1 Earnings Season is Starting – What we Expect

Airline earnings season is starting this week, and we expect a major impact from the Israeli-US war with Iran. While we don’t yet know whether Donald Trump will or will not “destroy a civilization” later tonight, we know that the war is having a major impact on fuel prices for the airlines. That, in itself, will result in major financial impacts.

The question that hangs in the balance is how high jet fuel prices will go. With crude oil prices up due to constraints in the Straight of Hormuz, we expect JetA prices to rise to $4.75-$5.00 per gallon in the near future and likely remain there through 2026. The result of that price increase will severely and negatively impact financial performance and earnings at most major US carriers, likely turning profitable operators into break-even or small-loss operations, and airlines not performing well into more serious red numbers.

Surprisingly, despite the Iran War and the unrelated TSA lines after those employees were unpaid, domestic airline traffic has remained resilient. We expect Delta, United, and Southwest to remain robust, albeit likely with break-even or net loss results. The low-cost carriers, such as JetBlue, and ultra-low-cost carriers like Frontier, which don’t fully control their revenue streams relative to the majors, will likely lose traffic and face larger drops in earnings than their larger counterparts.

International traffic has been affected by flight curtailments by Gulf carriers, and JFK movements are down 14% year over year over the last week, according to FlightAware.  Overall, apart from Middle Eastern flights, the US market has not been significantly impacted, with primarily domestic operations essentially unchanged. The TSA issues, now resolved, likely had a larger impact than the war on US carrier operations in March.

European Carriers

Carriers in Europe also face high fuel prices, but may find Europe to Asia flights gaining load factors if air travel for the Middle East Big 3, Emirates, Qatar, and Etihad, is restricted. With Iran shooting missiles at the UAE, Qatar, Saudi Arabia, Bahrain, and other states that have supported the US with military bases, disruptions in air travel are likely to continue. Those disruptions result in a significant drop in earnings for local carriers, which depend on connecting traffic between Europe and the Americas to Asia via the Gulf.  

London Heathrow movements are down 15% year over year for the last week, reflecting fewer flights from the ME3 carriers. European operations, other than the Gulf region, appear normal, with traffic that normally connects in the Gulf now moving to other hubs.

While navigation corridors for European carriers to Asia may result in longer flights, customers may be unwilling to take the risk of a connecting flight amid a war zone. With the airport in Dubai and two hotels hit by an attack early in the war, changes in bookings toward longer, pricier non-stops with European carriers may benefit.

The Gulf Carriers

With a surge in outbound traffic demand from Dubai early in the fighting, we haven’t fully analyzed the results to separate one-time travel from longer-term demand, but expect a major impact. Aircraft movements remain down today, with fewer than 500 daily flight arrivals and departures at Dubai, compared to about 1150-1225 in 2024 and 2025, respectively, according to FlightAware. 

With nearly a 2/3 drop-off, Emirates faces challenges. At Doha, flights are down 82% week over week when compared with last year, and at Abu Dhabi, flights are down 49% compared to the same week in 2024. The bottom line is that it is difficult to be profitable when you aren’t flying, but you still have fixed costs and must keep staff on the payroll for the forthcoming upswing when hostilities end. 

The key question is how long this war will last, with net losses mounting each week it continues.  The high level of flight cancellations is unsustainable over the long term if this war turns out to be similar to the wars in Iraq and Afghanistan.

Given Iran’s alliance with the Houthis in Yemen, Hezbollah in Lebanon, and its own military, asymmetrical attacks could continue for quite some time, even if known military targets in Iran are demolished.  That may result in random attacks that could impact passenger safety at key Middle East hubs without warning, with perhaps a long-term deleterious impact on the Middle East 3 earnings.

The Bottom Line

The first quarter, much of which was completed before the war began at the end of February, will prove to have the greatest impact on the Gulf carriers, both in the short and long term, as their major operations remain within missile attack range of Iran. But with higher fuel prices and limited ability to raise fares without losing traffic, European and North American airlines will find margins shrinking dramatically.

It would not surprise us if annual guidance from the major carriers moves from positive to break-even or slightly negative for the full year. The decision on whether to expand the war tonight will certainly shape expectations for the conflict’s duration and the war’s long-term impacts on fuel prices and airline profitability.

Based on current conditions, we believe fuel prices will likely remain high throughout 2026, resulting in net losses for most US carriers.

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