Airlines Reeling from the Pandemic Hammered Yet Again by Oil Prices

Oil Prices Into the Stratosphere

Since Russia’s invasion of Ukraine, the price of oil has skyrocketed and now easily exceeds $100 per barrel — the highest level in decades. Because fuel is the airline industry’s second-biggest expense after labor, some analysts are making downward revisions to profit estimates.

This comes on the heels of two rough years, with airlines struggling to get traction. Lingering concerns over COVID-19 and the potential for emerging variants may continue to sap demand. Analysts argue travel will also be muted by shrinking pocketbooks as inflation takes its bite out of consumer spending power.

Airline Stock Prices Tumble

Market observers say the conflict in Ukraine is likely to diminish consumer enthusiasm for European travel. Airlines that rely on transatlantic flights, such as United Airlines (UAL), have been hit particularly hard.

Labor shortages are exacerbating pressure on bottom lines. Stock prices of United Airlines, Delta Air Lines (DAL) and American Airlines (AAL) have fallen significantly in recent trading. All three are below 2019 peaks.

The Case for Optimism

In the near term, consumers may not see fares rise due to the airline industry’s intense competition. Amid inflation, wariness over geopolitical tensions, and COVID-19 potentially dampening enthusiasm for travel, the airlines may be hard pressed to raise prices either way.

There is reason for optimism in the long term. Some airlines used the last two years to streamline and cut expenses. Pent-up demand could entice people to venture out, especially during the summer. The luxury travel segment also offers promise as these consumers are less likely to reduce discretionary spending in response to rising costs. Oil prices are just the latest challenge airlines must confront in their post-pandemic flight plan.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
SOSS22030802