The European airline sector is taking a hit from record-high fuel prices due to Russia’s war on Ukraine, international credit rating agency Fitch Ratings said Monday.
In its latest report, the agency said the sector has been negatively affected by the recent record-high energy prices and mutual sanctions between Western countries and Russia.
“Increased jet fuel costs, particularly for carriers with lower hedging ratios, could undermine profitability recovery, despite European carriers having higher hedging positions relative to other regions,” it said.
“This is exacerbated by bans to fly in and over the countries involved in the conflict, leading to traffic losses and lengthened long-haul routes,” it added.
Fuel is the largest expense item for airlines, having represented about a quarter of all costs before the conflict with a growing share of costs as fuel prices rise.
‘Turkiye could benefit from not closing its airspace to Russian airlines’
Pointing out that most European countries have closed their airspace to Russian airlines, Fitch said Turkiye is among the few countries allowing Russian airlines in their airspace, the report said.
Turkiye’s “carriers, particularly Turkish Airlines, could benefit in the short term from the country’s position as the hub linking Russia with other destinations,” it said.
“In the absence of flying over Russia, carriers with more southerly routes to Asia, such as Turkish Airlines and Etihad, could benefit in the short term, although general demand from Asia is yet to be meaningful,” it noted.
“Flights over Russia and Ukraine were the shortest routes for many long-haul flights for European airlines, which now have to lengthen, increasing costs.”
The rating agency said air traffic is still recovering from the coronavirus pandemic, expecting a full recovery to 2019 traffic levels by 2024.
“The latest geopolitical developments, if their impact is lasting, are another setback that may slow the recovery,” it added.