Airlines are striving to cut fuel costs, but stock price declines may be nearing the bottom

Investing.com - Facing rising jet fuel prices, UBS analysts have lowered their target prices for U.S. airline stocks, but they say the recent decline in share prices may indicate that the sector is approaching a bottom.

UBS expects several airlines to report their first-quarter earnings earlier this week. Most airlines’ guidance is likely to be near the midpoint of their forecasts.

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Fuel prices surged in early March, but airlines typically hold about two weeks of fuel inventory, meaning the price increase should only impact roughly half of this quarter. This could limit the drag on first-quarter profits.

Airlines also reported that demand remained strong throughout the quarter, which could support revenue per available seat mile (RASM). However, many airlines will pause issuing full-year 2026 guidance due to fuel price uncertainty.

The broker states that United Airlines may benefit from higher revenue and lower labor costs, as the company has yet to finalize its flight attendant contracts. This could help offset higher fuel costs.

UBS says that Delta Air Lines and Alaska Air Group’s earnings are expected to be close to the midpoint of their guidance ranges.

U.S. airlines that are more sensitive to fuel costs, such as American Airlines, may see profits near the lower end of their outlook ranges.

UBS expects profits across the sector to decline in 2026, lowering its EPS forecast for Delta from $7.17 to $5.85 and reducing the target price from $87 to $83.

The firm also lowered United Airlines’ 2026 earnings forecast from $13.56 to $10.22 and its target price from $147 to $134.

American Airlines experienced one of the largest cuts, with UBS lowering its 2026 earnings forecast from $2.21 to $0.43 due to its high fuel exposure.

Despite the significant sell-off in airline stocks, which may suggest the sector is nearing a bottom, airline shares have fallen about 17% to 30% since late February, comparable to the decline after the surge in fuel prices following the Russia-Ukraine war outbreak in early 2022.

If fuel prices continue to rise or inflation worsens, it could lead consumers to cut back on travel spending.

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