Morgan Stanley | Analysis by Axel Stasse (analyst) shows that flag carriers are more exposed to rising aviation fuel prices than low-cost airlines. The main European low-cost carriers have directly hedged their exposure to jet fuel, which protects them from recent volatility.
In contrast, flag carriers hedge mainly with Brent/diesel and add exposure to jet fuel closer to the flight, leaving them more exposed to crack spread volatility. Deutsche Lufthansa’s Brent/diesel-only hedge leaves it more exposed in the short term, with fuel costs rising >35% if the crack spread remains high, eroding 88% of FY26 MSe EBIT. However, his analysis reflects an extreme scenario, without considering possible mitigators via prices.
Axel continues to favour IAG as his Top Pick, supported by strong 4Q25 results, FY26 prospects and comparatively lower exposure to jet crack volatility versus its peers. Early indications from fare analysis show weakness in Germany and resilience in London.
