Key Highlights

● Southwest and United are trimming capacity as surging crude lifts jet fuel costs.

● Brent settled at $109.86, its highest close since May 19.

● US gasoline averages $4.33 a gallon, against $3.06 a year ago.

● Southwest reports Oct 21 after the close, a day after United and before American.

Cutting back as costs rise

Southwest Airlines (NYSE:LUV) drew attention on the Dow Jones Transportation Average on Friday as airlines responded to a jump in fuel prices. Southwest and United Airlines (NASDAQ:UAL) are trimming capacity, according to market reports. No closing price move for Southwest was reported in Friday's market coverage.

Southwest is one of the largest US airlines by passengers carried, known for a point-to-point domestic network and a long history of focusing on cost control. Fuel is typically one of the biggest expenses for any airline, so a sustained rise in crude prices can weigh heavily on profitability unless carriers can offset it through higher fares or by flying less.

The fuel squeeze is hitting the whole industry. American Airlines (NASDAQ:AAL) faces about $1 billion of added fourth-quarter fuel costs and may cut capacity further, market reports said. BMO cut its price target on American to $15.50 from $19, BofA to $15 from $17 and Goldman Sachs to $11 from $13.

What is driving fuel prices

Oil continued its climb on Friday. Brent crude rose $3.94 to settle at $109.86 a barrel, its highest close since May 19, per market data. Brent touched $110 intraday for the first time since May, while West Texas Intermediate traded above $101 intraday.

The rally was driven by Iran escalating attacks on tankers in the Strait of Hormuz, along with threats to Russian refining, reports indicated. 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.

Consumers are feeling it too. US gasoline averages $4.33 a gallon, compared with $3.06 a year ago, and the Primary Consumer Sentiment Index fell 5.3 points to 45.2, its lowest since October 2011. Weaker sentiment can weigh on leisure travel, an important part of Southwest's business. Budget carrier Frontier Group Holdings (NASDAQ:ULCC) fell on those concerns and on higher yields.

A down day for markets

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, also had J.B. Hunt Transport Services (NASDAQ:JBHT) among its decliners after third-quarter fuel, purchased-transportation and insurance costs rose faster than revenue. J.B. Hunt closed at $228.78, market data showed.

The 10-year Treasury yield eased to roughly 5.1 by the close. Federal Reserve Chair Kevin Warsh, speaking at an IMF gathering in Bangkok, declined to preview the October decision. "I don't prejudge meetings," he said.

Southwest Oct 21 Report With CSX, Knight-Swift

University of Michigan consumer sentiment is due Oct 23, and the Fed's next rate decision is Oct 28. United Airlines reports Oct 20 after the close and American Airlines on Oct 22.

Southwest reports third-quarter results on Oct 21 after the close, alongside fellow transport names CSX (NASDAQ:CSX) and Knight-Swift (NYSE:KNX), per market data. Investors will look for detail on fuel costs, the scale of capacity trims and demand trends into the holidays.