European airlines at risk from partial hedges against fuel costs

Soaring jet fuel prices are weighing on airline stocks and threatening earnings — with carriers positioned only for short-term disruption as the Middle East conflict grinds into its third week. Many airlines remain only partially hedged against a near-doubling in European jet fuel prices since the war in Iran began, spiking above $1,600 a metric ton. That’s comparable to the move at the onset of Russia’s 2022 invasion of Ukraine. [caption id="attachment_57295884" align="aligncenter" width="1200"] (Courtesy/Bloomberg)[/caption] A UBS Group AG basket of European airlines has fallen about 14% so far this month. The same gauge suffered a peak-to-trough slide of nearly 50% at one point in 2022. “The sector continues to price in a relatively short disruption from conflict in the Middle East, and while this may be the case, we think there is a risk that crack spreads remain elevated through 2026 as they did following the onset of the Russia-Ukraine conflict,” wrote Citigroup Inc. analyst Conor Dwyer in a note on Thursday, referring to the difference between the price of crude oil and that of refined products made from it. The sector looks only partially insulated to rising fuel costs after putting hedges that are mostly in place until the end of the quarter. After that, the impact might become much stronger given fuel typically accounts for about 26% of operating expenses on average, according to airlines association IATA. Those at risk include “budget carriers with no direct exposure to the major Middle Eastern hubs” while airlines that are “the most hedged against Brent and refining margins will have a relative advantage,” said Bloomberg Intelligence Conroy Gaynor and Evgeniy Batchvarov in a note. They noted that Ryanair Holdings Plc reported it had hedged about 84% of its expected fuel consumption to March at an implied rate of $770, with 80% at $670 for the next 12 months. Wizz Air Holdings Plc had 83% at a ceiling of $749 and 55% at $716 for those periods. Carriers in the US and Asia are seen to have less hedging and would be more exposed to jumps in fuel prices. While higher fuel prices led the analyst to cut estimates across the European airline sector, Citi’s Dwyer sees Ryanair as the “best-placed to weather the current turmoil,” while IAG SA shares are “most mispriced” and offer value, he said. For Deutsche Lufthansa AG, earnings before interest and taxes for 2026 is at risk while sell-rated Wizz Air Holdings Plc’s growth plans in the current environment look difficult to manage, Dwyer said, adding that the stock is likely to see further sizable downgrades. Since the start of the year, shares in London-listed Wizz Air have taken the biggest hit — down 29% — given its higher exposure to the Middle East. Meanwhile, other legacy carriers that have weaker hedging policies have underperformed Ryanair. While strategies differ between airlines, some carriers may have other ways to offset rising fuel costs, including their ability to pass them on to the consumer. “The legacy carriers have underperformed the LCCs since the onset of the crisis, which may be justified given average leverage, although may not prove right if increased scope to pass on fuel headwinds in long-haul materializes,” wrote RBC Capital Markets analyst Ruairi Cullinane in a note this week, referring to low-cost carriers. Cargo Facts will present four invaluable events for airfreight professionals in 2026, the next of which is <a class="Hyperlink SCXW113043295 BCX0" style="color: #ff0000;" href="https://cargofactsevents.com/asia/?utm_campaign=22235567-CF%20Asia%202026&utm_source=Editorial&utm_medium=article%20event%20footer&utm_term=CF%20website&utm_content=Learn%20More&utm_source=Weekly+Update+-+Cargo+Facts&utm_campaign=fbe548904b-CF+Update_COPY_01&utm_medium=email&utm_term=0_621baa6827-fbe548904b-40083601&mc_cid=fbe548904b&mc_eid=adbe8bb0b4" target="_blank" rel="noreferrer noopener"> Cargo Facts Asia on March 23-25. To see the agendas and register for the events, visit CargoFactsEvents.com .

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