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I wrote [this ](https://www.reddit.com/r/investing/comments/1slcqyj/this_is_fine_paper_markets_vs_physical_reality/)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](https://www.youtube.com/@MrGlobalYouTube) and I spent some time looking into his background and a few recent videos. [This one](https://www.youtube.com/watch?v=QYFS3XdXhgg&pp=0gcJCdQKAYcqIYzv) 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](https://www.pbs.org/newshour/economy/what-lagging-jet-fuel-supplies-could-mean-for-airlines-and-travelers) 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](https://www.sec.gov/Archives/edgar/data/6201/000000620126000031/a8kerexhibit991q1-26.htm) for Q2; according to the transcript they set their fuel curve for guidance on [April 20](https://www.fool.com/earnings/call-transcripts/2026/04/23/aal-q1-2026-earnings-transcript/) when physical spot price was “just” $3.87.
Doesn’t seem like much…except [AAL’s own filings](https://americanairlines.gcs-web.com/static-files/b5c20aba-ca15-4516-8720-acc80a961c3d) 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](https://www.reuters.com/business/energy/us-airlines-no-longer-hedge-fuel-costs-that-could-hurt-margins-if-iran-conflict-2026-03-06/) \- so market forces dictate what they pay for fuel and contracts. Given that the [average spot price so far](https://www.airlines.org/dataset/argus-us-jet-fuel-index/) 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 that website) to what AAL reported as their full-year average fuel cost for 2025 on their [10-k](https://www.sec.gov/Archives/edgar/data/6201/000000620126000014/aal-20251231.htm). While spot prices according to Argus largely hovered in the $2.20s, AAL reportedly paid roughly $2.39, consistent with market rates plus taxes and fees etc.
Their 10-K does not reference fuel prepurchases and indeed names fuel price volatility as a significant risk to performance. Napkin math, at time of writing this would come out to $325 million in additional fuel expense if the average holds for Q2 alone ($12.5m per quarter x 26 cents = $325 million).
Talk of impending jet fuel shortages and route cuts are finally hitting [the mainstream](https://www.nytimes.com/2026/04/24/travel/flight-cancellations-europe-summer-vacation.html), and like I said at the beginning…I am confident this gets much worse. But even if prices plateau from here AAL is teed up for a very bad few quarters. The company’s guidance for the quarter and the year is built around an impossible fuel price. For simplicity, let’s just assume that additional $325 million loss in Q2. At 670 million shares, we come out to an additional loss of ($0.49) per share in Q2. AAL guided Q2 at a range of ($0.20) to $.20.
That they’re going to miss seems all but certain, and we’re less than a month into the quarter with fuel prices continuing to rise. The one saving grace if fuel costs do continue to skyrocket might be demand destruction…but I’m pretty sure selling markedly fewer tickets is still generally a bad thing for revenue. See also: 2008. The only remaining question is how badly do they bleed, and how much are they forced to slash full-year guidance.
The kicker here is AAL enjoyed a nice little low-volume bump after earnings and some analyst accolades that ignore fuel entirely as a factor. They focus instead on improvements to the business in a ‘normal’ operating environment and assume fuel normalization within the next few months. In a bit of odd timing, United’s CEO put out a public statement acknowledging that American Airlines had [slammed the door](https://www.cnbc.com/2026/04/27/united-airlines-merger-with-american-airlines-ceo-airline-confirms.html) on a merger conversation just before I went to hit publish.
Could write a fuller post about the many reasons fuel normalization isn’t happening within the next few months, but that would push me squarely into “Too long, didn’t read” territory.
Positions: 1. Lottery-esque but cheap $5 January 2027 puts to catch a ‘recession + high gas prices’ scenario (2008). AAL has $[34.7 billion](https://www.sec.gov/Archives/edgar/data/0000006201/000000620126000031/a8kerexhibit991q1-26.htm) in debt to service.
2. Safer, still reasonably priced $10 January 2027 puts because AAL's guidance is setting up a big surprise to the downside even if demand stays robust.