It’s happened before. The Arab Oil Embargo, which ran from October 1973 through March 1974, was a result of the Yom Kippur Arab-Israeli War.[1] Arab Petroleum Exporting Countries sought to stop oil to any country assisting Israel. Since the U.S. supplied Israel with weapons, a total U.S. oil embargo was imposed, resulting in the price of oil rising 300% to 400% in the U.S. (the embargo ended in March 1974, but the price of oil remained higher). Today it’s different. With shale oil, the U.S. has consistently been a net exporter of petroleum and the world’s largest oil producer. Still, the impact of the current conflict with Iran (which began on February 28) on aero and rail opportunities has caused jet fuel costs to more than double. Major U.S. airlines are adjusting operations[2] and financial outlooks. United is “tactically pruning” its schedule, cutting approximately 5% of planned capacity (“temporarily unprofitable flights”) during the second and third quarters of 2026, and stress-testing a scenario in which oil hits $175 per barrel and remains above $100 through the end of 2027. Despite capacity cuts, United Airlines CEO Scott Kirby[3] stated the airline will not furlough staff or delay the delivery of new aircraft: Boeing 787-9 Dreamliners, Airbus A321neos, A321XLRs, Boeing 737 MAX jets, and CRJ450 regional jets operated by SkyWest (for newer aircraft; the A320neo and the 737 MAX families are the most defensible positions). Taking delivery of more fuel-efficient models is an obvious way to reduce costs, but airframe OEMs have been unable to meet demand for new equipment, and new generation engines have delayed deliveries. Given the scale of OEM backlogs and ongoing supply chain disruptions, delays mean the supply-demand imbalance will support existing mid-life aircraft well into the 2030s. Scott Kirby feels premium travel is strong enough to allow United to raise fares by as much as 15% to 20%, recouping United’s higher jet-fuel cost by early next year.
Rail sits in a different position. Class One freight railroads operate on a 140,000-mile route network (the largest in the world). It’s 100% diesel dependent, and rail carriers use a rail fuel surcharge to mitigate the effect of fuel cost fluctuations. With higher fuel prices, it is a beneficiary of a modal shift away from trucking, as truckers are currently paying over $5 per gallon for diesel. And, with the Gulf energy shocks, the global food supply chain is under stress, driving demand for grain and fertilizer hoppers and ethanol tank cars. The Association of American Railroads’ April 7th Rail Time Industry Overview reported a first-quarter pickup in U.S. rail traffic. U.S. railroads originated 2.68 million carloads in the first quarter of 2026, up 4.2% over 2025. Carloads averaged 223,676 per week, the most for the first quarter of a year since 2019 (carloads were up year-over-year in each of the first three months of 2026). Thirteen of the twenty carload categories saw gains over the comparable period last year. Excluding coal, carloads were up 4.5% in the first quarter over last year and, at 1.98 million, the most since 2015. The AAR Freight Rail Index (FRI), which is a useful gauge of rail traffic categories and is well correlated with the economy, averaged 114.7 for Q1 2026, the highest for any quarter since Q4 2018.
The U.S. economy remains resilient (the S&P 500 has more than tripled in the past decade). In March, the Bureau of Labor Statistics reported nonfarm payrolls increased by 178,000 while the unemployment rate fell to 4.3%. Few are predicting a recession. At its April meeting (Powell’s final meeting as Fed chair), the Fed left rates unchanged, electing to “wait and see” what the war’s impacts might be.
Aero and Rail opportunities can be broken into three strategic investment categories depending on risk appetite and time horizon: 1) investors who want immediate lower risk exposure, 2) investors with distressed asset appetite, and 3) long-term strategic investors. Searching for the best Aero and Rail investments for your risk profile? Call RESIDCO.
Glenn Davis 312-635-3161
[1] The Yom Kippur War lasted between October 6 to October 25, 1973.
[2] Direct routing, speed reductions, network optimization.
[3] March 20, 2026 Message from United CEO Scott Kirby to Employees.
