The war in the Middle East is hitting the entire stock market hard, with the S&P 500 index down 1.3% since the initial U.S.-Israel attacks on Iran -- and plummeting even deeper at times. But one group of stocks is faring particularly poorly due to the conflict.
I'm talking about airlines. The war is a one-two punch for the major carriers, as it simultaneously drives down demand for travel and drives up fuel costs. In addition, the war has led to a significant cancellation of flights, as many critical airports in the Middle East are shut down now due to the conflict.
Over the past week, Southwest Airlines (LUV 7.37%) has dropped almost 13%, Delta Airlines (DAL 2.03%) has fallen 15%, American Airlines (AAL 4.44%) plummeted 16.7%, and United Airlines Holdings (UAL 4.58%) is down a whopping 19.6%. Let's review and see what could lie ahead from here.
Image source: Getty Images.
Some 11,000 flights to and from the Middle East have been canceled, which has affected more than a million passengers. Major airports such as Dubai International, Abu Dhabi International, and Hamad International in Doha have been shuttered. Those airports are normally some of the busiest in the world and serve as critical transit hubs for passenger and cargo traffic between Europe and Asia.
Fuel costs for airlines are spiking
Meanwhile, the price of crude oil has spiked. Brent crude, the international benchmark, has risen about $13 per barrel since the beginning of the conflict, from about $72 a barrel to more than $85 on Thursday. That's because the Strait of Hormuz, which is vulnerable to Iran's attacks, has essentially come to a standstill in recent days. Some 20% of global petroleum moves through this narrow sea passage that connects the Persian Gulf with the wider world.
Jet fuel prices have risen even more. U.S. jet fuel soared from about $105 a barrel on Feb. 27 to $150 five days later. Fuel accounts for 15% to 25% of a flight's cost.
There has been a sudden demand for air travel -- but only for flights out of the Middle East. Once those travelers have fled the region, demand for international flights in particular could drop off precipitously.
NYSE: LUV
Key Data Points
Is there an end in sight for the airlines' woes? It's not clear. While many analysts initially predicted a short, contained conflict in the Middle East, it seems to be expanding, with little indication that the Iranian regime wants to negotiate. In fact, that regime has adopted a strategy of fomenting chaos in the region with attacks on neighboring countries.
I wouldn't be at all surprised if stocks fall further and remain lower for longer due to the conflict.
