Key Highlights

● American Airlines slid Friday, with about $1 billion of added fourth-quarter fuel costs expected.

● Brent settled at $109.86, its highest close since May 19, after Hormuz tanker attacks.

● BMO, BofA and Goldman Sachs lowered their price targets on the airline.

● United reports Oct 20, Southwest Oct 21 and American Oct 22.

A fuel shock for the carrier

American Airlines Group (NASDAQ:AAL), a member of the Dow Jones Transportation Average, fell on Friday, per market data. According to market reports, the airline faces about $1 billion of added fuel costs in the fourth quarter and may cut capacity further.

Analysts responded by lowering their expectations. BMO cut its price target to $15.50 from $19, BofA lowered its target to $15 from $17 while keeping a Neutral rating, and Goldman Sachs cut its target to $11 from $13 with a Sell rating, according to analyst-call roundups.

American is one of the largest airlines in the world, operating an extensive domestic and international network from hubs including Dallas-Fort Worth and Charlotte. Jet fuel is typically one of an airline's two biggest costs, alongside labor, so a sharp move in crude prices can quickly reshape profit expectations.

Oil climbs on Hormuz attacks

Crude prices jumped again on Friday. Brent climbed $3.94 to settle at $109.86 a barrel, its highest close since May 19, and touched $110 intraday, market data showed. West Texas Intermediate traded above $101 intraday; one source put the December contract at $99.02, up $2.52.

The rally was driven by Iran escalating attacks on tankers in the Strait of Hormuz and by threats to Russian refining, according to market reports. ING commodities strategists said oil is "pricing in a significant risk premium." The International Energy Agency pledged to release the remaining 100 million barrels under its March agreement, a Saxo Bank analyst noted.

American was not alone in responding to higher costs. United Airlines (NASDAQ:UAL) and Southwest Airlines (NYSE:LUV) are trimming capacity, market commentary said. Capacity cuts can help airlines protect fares and limit fuel consumption, but they also reduce the number of seats available for sale.

Transports in a falling market

The broader market was also lower. The S&P 500 fell 84.62 points to 7,659.44, the Dow Jones Industrial Average slipped 175.28 points to 52,002.41, and the Nasdaq Composite dropped 572.99 points to 26,140.03. Energy was the best-performing sector, while chip, software and AI-infrastructure stocks led the decline. The Dow Transportation Average, which tracks 20 major US airlines, railroads, truckers and logistics companies, is often watched as a barometer of the freight economy, and Friday's pressure on carriers came as fuel costs climbed sharply.

Elsewhere in the transports, J.B. Hunt Transport Services (NASDAQ:JBHT) fell to $228.78 after its third-quarter results showed fuel, purchased-transportation and insurance costs rising faster than revenue.

Consumer demand is another question for airlines. The Primary Consumer Sentiment Index fell 5.3 points to 45.2, its lowest since October 2011, and market data also linked a decline in budget carrier Frontier Group Holdings (NASDAQ:ULCC) to weak sentiment and higher yields.

American Airlines Fuel and Capacity Plans

On the macro side, University of Michigan consumer sentiment is due Oct 23, and the Federal Reserve's next rate decision is Oct 28. Traders will also track oil prices and any further incidents in the Strait of Hormuz.

Airline earnings arrive next week. United Airlines reports Oct 20 after the close, Southwest Airlines on Oct 21 after the close, and American Airlines is scheduled to report on Oct 22, when investors will look for detail on fuel costs, capacity plans and holiday travel demand.