$UAL

Summary

The analyst went long on a basket of airline stocks (Delta, United, Alaska) mid-June based on a macro thesis that US-Iran MOU and lifting of naval blockade will lower oil prices, benefiting airlines through margin expansion and strong demand.

Reasoning

US-Iran MOU led to lifting of naval blockade in Strait of Hormuz, increasing oil supply and lowering prices from $92.16 to $70.24/barrel, which reduces fuel costs (a significant expense for airlines) and expands margins. Demand for airline travel is at record highs, supporting pricing power and unit economics. Company-specific factors include Delta and United's structural premiums and loyalty, and Alaska's higher beta to fuel prices.

Personally went long on Airlines mid-June. Specifically a basket of: 1. $DAL (Delta) 2. $UAL (United) 3. $ALK (Alaska) It's a very simple thesis, and based around my Paradis Macro Reports: - On June 14th Shehbaz Sharif (Pakistan PM) announced that the US + Iran had finalized an MOU. - Then on June 17th, the deal was signed between the US and Iran (more nuanced than this....but broad strokes). - And Trump confirmed the immediate lifting of the US naval blockade of ships in the Strait of Hormuz. - Which is a key waterway for oil shipments at >25% of total global seaborne oil trade. So more oil supply = Falling prices = Huge tailwind for airlines heading into summer travel season. (Crude oil was $92.16/barrell on June 1st and is now at $70.24). Which equals margin expansion for the airlines: - Delta: fuel was 17% of FY2025 opex - United: 21% - Alaska: 21% Rough napkin math on how sensitive airlines are to fuel costs: A 1 cent/gallon move: - Delta: ~$4.0B / yr - United: ~$4.7B / yr - Alaska: higher beta name since they're most sensitive to oil prices where every $0.10/gallon move ≈ $0.75 EPS for full year. So as oil prices comes down, that's a huge tailwind for the airlines manifesting as raw margin expansion. And then on the demand-side: Things are at record-highs. E.g. Delta said earlier in June that "this year, YTD, we've had 65 days of over $100M in cash sales in our direct channels… Last year, that was only 19." And even with the falling oil prices, unit economics / pricing power still seems high. Where some carriers cut summer capacity in response to fuel spikes before the MOU and some airfares are ~20% higher than last year. Ofc though, the Hormuz situation is very fragile: With multiple sources showing that ceasefire has been repeatedly violated. And Iran briefly re-closing the strait on June 20th citing Israeli strikes in Lebanon (denied by the US). But looking at data from MarineTraffic, more than 70 ships went through Hormuz last Wednesday alone. Which is more than 2x the traffic from Tuesday, driven by the US partially lifting sanctions on Iranian oil exports as part of the ceasefire agreement. There's also some other company-specific reasons for deciding to go long too: - Delta and United are less risky and probably carry higher structural premiums / loyalty overlays that can justify longer holds. Will probs hold into earnings + maybe another 1-2 quarters once summer demand has digested into earnings. - Alaska is higher beta as mentioned and is more a play on fuel prices. Will probs cut before earnings. Can do a separate post on each company individually though. But mainly, it's a macro driven trade that should show up in company earnings and maybe guidance coming up soon: - Delta on July 10 - United on July 15 - Alaska on July 16 And just as a caveat if it wasn't obvious - this is a high risk macro trade tied to US/Iran war. Working well so far, but no idea if it turns back around. Wouldn't advise people to copy trade this. Just sharing my thesis cos may be a useful resource for others to learn.

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