U.S. airline stocks have surged collectively in recent sessions, propelled by a sustained decline in international oil prices and exceptionally robust summer travel demand.

Jet fuel prices have tumbled approximately 30% over the past month. This drop follows a significant easing of supply tightness in the crude oil market, stemming from an agreement between the U.S. and Iran to halt fighting and reopen the Strait of Hormuz. Concurrently, international oil prices have relinquished all gains accrued since the U.S.-Iran conflict, providing tangible relief to airline cost pressures.

In a report issued this week, UBS noted that travel demand remains solid even as fares rise, with major airlines' second-quarter revenues anticipated to post low double-digit to mid-teens percentage growth. Ahead of Q2 earnings releases, UBS identified American Airlines and United Airlines as its top picks. The firm stated that American Airlines' profitability is highly sensitive to fuel prices and will benefit from strong industry demand, while United Airlines possesses significant earnings upside potential due to revenue momentum and lower fuel costs.

Market data corroborates this optimistic outlook. The S&P 500 Passenger Airlines Index has rallied sharply recently, approaching its all-time high. The U.S. Global Jets ETF has gained over 20% year-to-date, outpacing the S&P 500's approximate 8% gain over the same period. Airline stocks have broadly advanced, with Frontier Group Holdings surging more than 9%, while United Airlines, Delta Air Lines, Alaska Air Group, and Southwest Airlines all posted gains exceeding 4%.

Wells Fargo concurrently raised price targets for four major carriers. It increased its target for American Airlines substantially from $12 to $17, a hike of about 41.7%, and lifted its target for Delta Air Lines from $75 to $105.

Analysts point out that declining fuel costs provide a more pronounced boost to the profits of low-cost carriers, whose customer base is highly price-sensitive and whose margins react more directly to fuel price fluctuations. Additionally, the further tightening of seat supply following the shutdown of Spirit Airlines is also helping airlines maintain high fare levels.

Looking ahead to the third quarter, UBS anticipates major airlines' earnings per share could surpass Wall Street expectations. As the peak summer travel season intensifies, the upward momentum for airline stocks may persist in the near term.