Airline stocks are showing increased volatility as rising jet fuel costs and shifting travel demand weigh on the sector. Investors are assessing how carriers adjust pricing, capacity and fees in response to ongoing cost pressures.
BNN Bloomberg spoke with Nicolas Owens, equity analyst at Morningstar, who outlined how airlines are managing fuel shocks, competitive pricing pressures and differing demand across passenger segments.
Key Takeaways
- Airline stocks are experiencing heightened volatility due to fluctuating oil prices and sensitivity to operating costs.
- Higher jet fuel prices are being passed on to consumers through increased airfares and additional fees.
- Stronger carriers can absorb cost shocks, while weaker airlines face risks of capacity cuts or consolidation.
- Competitive pricing pressures can limit airlines’ ability to fully pass on rising costs, squeezing margins.
- Route reductions are being used to cut losses as previously profitable routes become uneconomic under higher fuel costs.
Read the full transcript below:
ROGER: Rising jet fuel costs and continued uncertainty around travel are impacting U.S. and Canadian airline stocks. Let’s take a closer look at the sector and its outlook with Nicolas Owens, equity analyst covering airlines at Morningstar. Nicolas, thanks very much for joining us.
NICOLAS: Thanks for having me, Roger.
ROGER: It’s been quite an up-and-down couple of days for airlines. Earlier today they were up, now many are in the red. Is it going to be like this for a while with everything that’s unfolding?
NICOLAS: I think the safe answer is yes. Airline stocks tend to be volatile. They’re highly levered, so small changes in operations can have a big impact on their finances. In this environment, we’re really looking at a day-to-day seesaw in oil prices. In the short term, unexpected changes in fuel prices affect profitability because airlines have already sold most of the seats on departing flights. But over the coming weeks or months, they typically pass those costs on to customers through ticket prices.
ROGER: I’m looking at Delta, with a $2 billion fuel hit, and the CEO sounding cautious. Could this bury some airlines?
NICOLAS: The short answer is yes — it becomes a question of the strong versus the weak. Delta, being one of the most profitable airlines in North America, can absorb those costs and pass them on to customers who are generally less price-sensitive. Discount or leisure airlines are more vulnerable. If oil were to reach $200 per barrel, that could push some weaker or distressed carriers to seek buyers or cut capacity significantly.
ROGER: Some airlines are trying to make money back by adding premium cabins and increasing fees. American, for example, has added a $50 charge for a first checked bag.
NICOLAS: That’s likely partly tied to fuel costs, but it’s also part of a broader competitive dynamic. Airlines are putting out a low base fare to stay competitive online, and then charging extra for add-ons. The back half of the plane increasingly resembles a discount carrier model, with additional fees layered on top.
ROGER: Are there other ways for airlines to offset fuel increases besides passing costs on to passengers?
NICOLAS: Ultimately, airlines also have to respond to competitors. In theory, they would pass higher fuel costs into ticket prices. But if a competitor keeps fares low, others are forced to match. That’s where weaker airlines can end up eroding profitability across the industry.
ROGER: We’re also hearing about airlines cutting routes, particularly in Europe, to save costs. Do they lose money doing that, or can it actually help?
NICOLAS: A spike in fuel costs raises operating expenses across the board. A route that was marginally profitable can quickly become unprofitable. In that case, it’s a prudent decision to cut frequency or cancel the route altogether to avoid losses.
ROGER: If things settle down in the Middle East and prices fall, how long before passengers see relief? Or do higher fares tend to stick?
NICOLAS: It’s a bit like a one-way street. Prices tend to rise quickly but fall more slowly. Even if crude oil prices drop, it takes time for that to flow through refining into jet fuel. So even in a best-case scenario, kerosene prices could remain elevated for several months before passengers see meaningful relief.
ROGER: One last question — any airline stocks you’re watching right now?
NICOLAS: There’s a lot of uncertainty across the sector — we rate all of them as high or very high uncertainty. That said, Air Canada and American Airlines appear somewhat undervalued, likely because they’re still catching up on premium growth strategies. Meanwhile, United and Delta look relatively overvalued at the moment.
ROGER: We’ll leave it there. Nicolas, thanks very much for joining us.
NICOLAS: Thank you.
ROGER: Nicolas Owens, equity analyst at Morningstar.
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This BNN Bloomberg summary and transcript of the April 9, 2026 interview with Nicolas Owens are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
