r/investing Apr 27, 03:15 PM
Shorting American Airlines - Oil Shocks Ahead I wrote this back on April 14th. Got some (well-deserved) grief for its wordiness, so I’ll try to keep this a bit more succinct. Scroll to the end for positions.
I’m continuing my efforts to understand this mess of an Iran situation and its impact - or inexplicable lack thereof, so far - on the global economy. And I’d like to make some money if I can to at least try and protect myself from what I fear is coming. The short version: I remain convinced that the whole house of cards starts to come crashing down on Q2 or Q3 earnings as the effects of sky-high physical energy and global shortage begin to hit companies in a tangible way the algos stop brushing past.
A Redditor recommended an energy expert by the name of Mr. Global and I spent some time looking into his background and a few recent videos. This one where he opines on the likelihood that fuel exports increase tremendously sent me down a rabbithole of domestic airline earnings seasons. Jet fuel shortages are already hitting most of the world. And now the realities of a global market mean an armada of VLCCs appears to be en route to the US to stock up on diesel and jet fuel. To be fair, I can't precisely say what this swarm of boats is picking up…but with April jet fuel exports to Europe reportedly 6x higher than average through mid-month it doesn't seem like a big leap in logic. And so I decided that SPY and energy may not be the only vehicles for my bearishness through the end of 2026.
I landed on the Big 3: Delta, United, and American Airlines, then spent some time looking into recent earnings and guidance. Guidance and the projected impact of fuel costs or shortages were the main goals, and I was originally going to run through Delta and United in this post…but the short version is that they both land on an expected fuel cost of $4.30 per gallon through Q2. I suspect that is going to turn out to be wildly low, but they’re in agreement and their reasoning is pretty easy to digest - their 8-K’s detail the curves they used, and even if paper futures are broken you can trace yourself where their math is coming from. Adding for some context - they’re all going to hurt a bit in Q2, but American Airlines has set itself up for the biggest miss.
AAL, the last to report on April 23, comes in estimating $4.00 per gallon for Q2; according to the transcript they set their fuel curve for guidance on April 20 when physical spot price was “just” $3.87.
Doesn’t seem like much…except AAL’s own filings report that for every $0.01 that fuel prices go up, expenses increase by $50 million annually. (So $12.5 million quarterly) Domestic American airlines are not financially hedged - so market forces dictate what they pay for fuel and contracts. Given that the average spot price so far in April has been $4.26 / gallon…they’re not likely off to a great start. To check that Argus prices roughly line up with AAL’s expenses I also compared April through December 2025 (the only months available from Argus on th