NextFin News - United Airlines slashed its full-year 2026 earnings outlook on Tuesday, becoming the first major U.S. carrier to quantify the financial toll of a volatile Middle East conflict that has sent jet fuel prices to levels not seen in years. The Chicago-based airline now expects adjusted earnings of $7 to $11 per share for the year, a sharp retreat from the $12 to $14 range it provided in January, before the geopolitical landscape shifted following military actions involving the U.S., Israel, and Iran.
The revised guidance comes despite a first-quarter performance that technically beat Wall Street expectations. United reported adjusted earnings of $1.19 per share on revenue of $14.61 billion, surpassing the $1.07 per share and $14.37 billion analysts had anticipated. However, the underlying data revealed a growing cost burden: fuel expenses in the first quarter jumped 12.6% year-over-year to $3.04 billion. For the second quarter, United projects fuel will average $4.30 per gallon, a figure that dwarfs the $2.20 per gallon seen as recently as December 2025.
Ravi Shanker, an equity analyst at Morgan Stanley, has taken a notably cautious stance on the sector, recently issuing a research note that revised down earnings forecasts across the U.S. airline industry. Shanker, known for his rigorous focus on macro-cyclical headwinds, argues that the "aviation winter" is no longer a theoretical risk but a present reality. His analysis suggests that the shock of surging jet fuel prices, coupled with broader crude oil inflation, will test the limits of airline resilience. While Shanker’s bearish tilt is well-documented among institutional investors, his skepticism regarding the industry's ability to maintain high growth in a high-cost environment is gaining traction as fuel volatility persists.
United’s strategy to combat these costs relies heavily on its pricing power and capacity management. The carrier expects to cover only 40% to 50% of the fuel price increase through revenue in the second quarter, though it aims to push that recovery to 100% by year-end. This implies a significant hike in ticket prices for consumers; some internal projections suggest potential increases of up to 20% to offset the energy bill. To protect margins, United is also throttling its growth, with second-half capacity expected to be nearly flat compared to the 3.4% growth seen in the first quarter.
The broader market remains divided on whether United’s aggressive price-pass-through strategy will hold. While the airline reported unit revenue growth across all segments in the first quarter—including a 7.9% rise in domestic revenue—some analysts warn of a "demand ceiling." If ticket prices rise too sharply, the leisure travel boom that has sustained the industry since 2023 could finally buckle. Brent crude oil, a global benchmark for energy costs, was last trading at $93.54 per barrel, maintaining the upward pressure that forced Tuesday's guidance cut.
The current forecast remains highly sensitive to the duration of the ceasefire in Iran and the stability of global supply chains. United’s wide guidance range of $4 per share reflects this uncertainty. If energy prices stabilize or the U.S. President Trump’s administration successfully negotiates a more permanent regional de-escalation, the airline could see a rapid recovery in its shares. Conversely, any further disruption in the Strait of Hormuz would likely render even the new, lowered $7-per-share floor optimistic.
Explore more exclusive insights at nextfin.ai.
