Morgan Stanley | Axel Stasse (analyst) notes that risks to oil supply could keep fuel prices high for longer, whilst European airline shares are not fully reflecting demand risks.
He considers the slight 18% underperformance relative to the market —compared with previous shocks of 35–40%— suggests that investors do not expect the current fuel price surge to remain at high levels, or believe that airlines can offset fuel inflation via pricing without damaging demand. Although greater pricing power could partially or fully offset fuel inflation in the short term, he estimates that double-digit fare increases in Europe could put pressure on volumes in Q2/Q3. He believes that Top Picks International Airlines Group (IAG) and Ryanair remain better positioned thanks to their lower operating leverage and fuel hedging.
