What's next for airline stocks now that Delta Air Lines and United Airlines have reported?

Investors were bracing themselves for what airlines like Delta Air Lines (NYSE: DAL) and United Airlines (NASDAQ: UAL) might report for the second quarter in light of the surge in jet fuel prices. However, although rising fuel costs are definitely having an impact on both airlines, Delta affirmed its forecast, and United Airlines actually increased its earnings outlook. Does this make both airline stocks a buy?

Rising jet fuel costs

It's no secret that hostilities in the Middle East led to sharply higher crude oil prices throughout the second quarter. The shortage of crude oil and jet fuel flowing through the Strait of Hormuz not only increased crude oil prices but also sent jet fuel crack spreads soaring. The end result was a major increase in jet fuel costs for airlines in the quarter.

As you can see below, the overwhelming majority of the increase in operating expenses in the second quarter was due to higher fuel costs, and in both cases, year-over-year operating income deteriorated.

Data source: Company presentations. *Adjusted figures

Both stocks look like excellent values

Rising fuel costs do matter, and both companies' management teams told the market they plan for significantly increased fuel costs in 2026.

Delta Air Lines expects its fuel costs to increase by $4 billion in 2026 compared to 2025, and United Airlines expects its fuel costs to be $6 billion higher than its original estimate going into the year.

However, before getting despondent over rising fuel costs eating into profitability, it's important to note a few things:

• Both companies are demonstrating the ability to offset rising costs by raising prices, cutting unprofitable capacity where necessary, and leaning into their premium cabin offerings, including pricing and other services.
• Although crude oil and jet fuel prices rose in the second quarter, it's far from clear that they will remain at the same elevated level.
• Even though rising costs reduced earnings for both airlines, they remain highly profitable, and both companies provided outlooks that placed their stocks firmly in value territory.

Fleshing out the last point, Delta Air Lines continues to expect full-year earnings per share (EPS) of $6.50 to $7.50, and United Airlines actually raised its full-year EPS estimate range to $9 to $11 from a previous range of $7 to $11.

To put these figures into context, here's what these guidance ranges mean in terms of valuation based on their price-to-earning (P/E) ratios:

Data source: Company presentations. The author's analysis is based on prices on July 17.

In other words, you are going to have to believe that both companies will miss the low end of their projections for them not to look like a good value based on 2026 earnings estimates. Moreover, note that the forecasts already have significantly higher fuel costs baked in.

Are they a buy?

In the end, the debate over the stocks comes down to the core question of whether the airline industry is still the same old cyclical industry characterized by violent boom-and-bust periods. If you believe it is, then a low price-to-earnings (P/E) ratio won't appease you, because many fortunes have been lost buying cyclical stocks at low P/Es just as their earnings peaked and then collapsed.

However, if you share my belief that Delta and United have diversified their revenue streams away from overreliance on main cabin ticketing and toward premium cabin ticketing, auxiliary services, co-branded credit card remuneration, and loyalty programs, then there's a strong case for buying their stocks. Not least because they are being stress-tested right now by rising fuel costs and appear to be handling a difficult scenario well enough to at least maintain their forecasts.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.