Top US airline stocks have wavered in the past few days as investors watch the closure of the Strait of Hormuz and its impact on jet fuel prices. Delta Air Lines (NYSE:DAL) stock retreated from the year-to-date high of $83.35 to $79.42, while United Airlines Holdings (NASDAQ: dropped to $105 from this month's high of $117. 

IATA Warns Airline Profits to Drop This Year

Southwest Airlines (NYSE:LUV) fell to $41.5, down by 25% from its highest point this year. The US Global Jets ETF (NYSE:JETS) stock is in a correction after falling by 11% from the year-to-date high.

In a report published today, June 7, IATA, an industry body representing global airlines, predicted that airlines will experience a sharp decline in profits this year because of the elevated jet fuel prices. It estimates that these companies will bring in about half of the collective earnings it predicted previously. 

The combined net profit of global airlines will be $23 billion this year, down sharply from the predicted $41 billion. These airlines made $45 billion in profits last year. 

In its report, IATA said that global demand was adjusting to the supply shock that has led to a surge in fuel costs. Despite these challenges, global travel has not collapsed, but has just moderated. Passenger traffic is expected to grow by 2.1% this year, lower than in the previous years. 

At the same time, cargo has been a stabilizing role in global trade, but growth has started to moderate in the Middle East. Cargo demand is expected to grow by 0.7% this year.

US Airlines Are Exposed Because Many Ended Hedging Strategies

For a long time, many airlines used the hedging strategy to handle the volatility in the jet fuel market. While this strategy is used widely in Europe, many American companies have abandoned it, citing its costs. 

The recent airline earnings showed how the war affected their businesses. Delta Air Lines said that its operating income retreated to $501 million in Q1'26 from $569 million in Q1'25. Its operating margin retreated to 3.2% from the previous 4%. 

United Airlines, on the other hand, said that the elevated fuel prices had forced it to adjust its schedule for the rest of the year. It now expects that its capacity in the third and fourth quarters to be flat. It also warned that it may continue cutting schedules if fuel remained at an elevated level. 

Southwest Airlines, which was the last big name to end the hedging strategy, made a net income of $227 million. Its fuel costs rose by $164 million during the quarter. 

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