European airlines have been more restrained than expected in cutting capacity near-term, but Bernstein analysts say the risk of winter capacity cuts is not over, even with fuel prices up 70% since the war started.
The firm sees pressures rising during winter, citing lower baseline contribution margins and a progressive roll-off of cheaper hedges.
Higher fuel prices make typically profitable summer flights less profitable. Winter flights could become altogether uneconomic.
Airlines accumulate fuel hedges over 18 months, but cheaper hedges secured before the war are expiring. Hedges provide a cushion, but it will deflate by winter.
Short- and medium-haul flying will be impacted more due to variable costs and lower margins.
Weaker airlines may be forced to cut capacity or fail altogether. Strong airlines like IAG and Ryanair are best placed to take advantage.
