American Airlines cut its 2026 profit forecast on Thursday, pushing the lower end of the range to a loss, as sky-high jet fuel costs driven by the Iran war hurt profit margins.

The airline expects its jet fuel bill to rise by more than $4 billion this year as fuel prices remain as high as about $4 a gallon in the second quarter.

Jet fuel prices, which typically account for a quarter of an airline’s operating costs, have nearly doubled since the conflict broke out, leaving carriers squeezed between spiraling costs and pre-sold tickets at prices they can’t adjust.

However, the airline posted a smaller-than-expected first-quarter loss and forecast a better second quarter than Street estimates, citing resilient demand and room to weather some higher costs.

Its shares rose 4% in morning trading.

Fuel prices rose as US-Israeli strikes on Iran disrupted traffic through the Strait of Hormuz, a critical corridor for global oil supplies, dealing the biggest blow to the aviation industry since the COVID-19 pandemic.

The carrier expected a per-share loss of 20 cents on the low end and a profit of 20 cents on the high end, compared with analysts’ expectations for a 9-cent loss in the second quarter, according to data compiled by LSEG.

Fuel cost recovery

In the US, with demand remaining resilient, airlines have resorted to fare increases, reduced capacity and jack-up fees for ancillary services such as checked bags to reduce some costs.

That is unlikely to fully offset increases in fuel costs, prompting major airlines to trim full-year expectations, even as the peak summer travel season begins.

For this year, American Airlines reported earnings of between 40 cents per share and $1.10 per share, compared with a previous forecast of $1.70 to $2.70 profit.

The company said it was recovering about half of higher fuel costs in the second quarter. It is expected to increase to 75% to 85% in the third quarter and to over 90% if fuel price hikes continue into the final quarter.

It also tempered its growth expectations, saying second-quarter capacity was running about one percentage point below initial plans, and that the airline expects additional cuts after the summer peak. The Fort Worth, Texas-based carrier pointed to an improvement in domestic demand after an earlier glut, expecting unit revenue, a measure of pricing power, to grow more than 10% in the second quarter.

It reported a narrow adjusted loss per share of 40 cents in the quarter ended March 31, compared with expectations of 47 cents.