A surge in jet fuel prices threatens to overshadow post-pandemic travel rebound

Airlines trying to claw their way out of two bruising pandemic years are now facing the most expensive jet fuel costs in more than 13 years.

Russia's invasion of Ukraine last month has set off a global panic around fuel supplies.

Some analysts expect U.S. carriers to trim first-quarter profit and revenue estimates in the coming weeks after fuel costs rose 32% last week alone. The expense is generally airlines' second biggest, behind labor.

"The higher fuel will more than wipe out better revenue near-term resulting in modest reductions to 1Q22 estimates," wrote MKM Partners airline analyst Conor Cunningham in a note.

The surge in fuel prices — more than 50% so far this year — is the latest challenge for carriers that expect travelers to come back in droves this year as Covid-19 cases fall.

Airline stocks have been among the hardest-hit industries in recent weeks as Russia's invasion through markets into turmoil. United Airlines, which has the biggest international network of the U.S. carriers, fell more than 17% last week. Delta Air Lines shares lost 13% last week, and American Airlines shares fell 15%. The S&P 500, in comparison, dropped 1% over the same period.

Airlines are limited in how much they can raise fares as they chase passengers returning to the skies.

For the second quarter, U.S. domestic schedules are flat compared with 2019 "and we doubt much capacity will be cut given the increased competition for the leisure customer," Andrew Didora, Bank of America airline analyst said in a Monday research note.

Didora said demand should outpace supply, particularly during peak leisure times, "but it will not create nearly enough pricing to offset the fuel move."

The second and third quarters, which coincide with spring and summer vacations, are when U.S. carriers generate the bulk of their revenue.

It could take months before travelers feel the fuel price in tickets. Cowen & Co. airline analyst Helane Becker sees a roughly four-month delay before fares catch up.

"As a result, it is likely the next few months will be financially concerning, even though traffic is strong," she said in a note on Friday.