AAA expects a record 72.2 million Americans to travel at least 50 miles this week for the Fourth of July. The TSA is preparing to screen nearly 18.7 million air passengers. And the fuel going into all those planes costs more than $2 a gallon less than it did in April.
Record demand meeting a collapsing cost line is the whole airline story heading into earnings season. The first report lands next Friday.
Record Crowds, Even at $3.83 Gas
The demand side is not subtle. American Airlines expects a record 8.1 million customers on more than 80,000 flights over the holiday stretch, up nearly 10% from last year. Roughly 61 million of this week's travelers are driving, about 85% of the total.
Here is the detail that matters for demand: the national gas average sits at $3.83, up more than 20% from a year ago because of the spring oil spike. Drivers showed up anyway. Travel demand held through the most expensive Fourth of July gas prices in years, which is the kind of stress test airline revenue managers dream about.
The Fuel Bill Collapsed
Jet fuel peaked near $4.88 a gallon in April, when the Iran conflict had crude near its highs. This week the Argus US jet fuel index fell below $3. WTI crude settled around $68 a barrel Thursday, its lowest level since late February, as oil gave back its entire war premium.
The guidance gap is where it gets interesting. Delta's April outlook assumed an all-in fuel price of about $4.30 a gallon for the second quarter. The quarter ended with spot fuel running well under that. Fuel is an airline's biggest cost after labor, and it is the one cost management cannot control. This quarter, it broke in their favor.
The Stocks Already Noticed
Delta touched a 52-week high of $95.68 on Thursday before fading to close at $92.75. Even after nearly doubling off its 52-week low, it trades at about 13 times trailing earnings and less than one times sales, with a small dividend on top.
American printed its own 52-week high Thursday at $18.79 before settling at $17.92, up nearly 78% from its $10.09 low. United closed at $133.32, within about 4% of its high, at roughly 12 times trailing earnings and 0.7 times sales. Southwest sits at $50.25.
The intraday highs faded into small losses by Thursday's close, profit-taking ahead of a three-day weekend. The trend is harder to argue with: all three of the big network carriers trade 19% to 27% above their own 50-day averages, a run built on falling fuel and holding demand while money rotated out of expensive tech.
The July 10 Test
We flagged the cheaper-fuel tailwind in mid-June. Since then, crude has fallen further and the demand data has gotten stronger. Now comes the proof: Delta reports second-quarter results before the open on Friday, July 10, the first major airline print of the season.
Analyst estimates sit around $1.43 in earnings per share, down roughly a third from a year ago. Those numbers were built when fuel guidance was $4.30. Watch two things: how much of the fuel windfall showed up in June margins, and whether management guides the second half assuming sub-$3 fuel or something more cautious. US airlines lost about $1 billion collectively in the first quarter on war-inflated fuel, according to Transportation Department data. The second quarter is the swing quarter, and Delta speaks for the group first.
