UBS says European airline capacity growth is starting to moderate, with Middle East route disruption and a sharp rise in jet fuel prices clouding the sector’s summer outlook.
The bank said geopolitics continues to shape how airlines deploy aircraft as demand adjusts, with the Middle East showing the most pronounced deterioration in schedules.
April schedules from the Middle East showed a contraction of around 55%, while May schedules have worsened to a 36% contraction, compared with a 26% decline the previous week.
UBS said the weakness is also feeding into wider long-haul trends. Second-quarter European long-haul capacity is now expected to decline by 0.6%, compared with a previous forecast for 0.9% growth. Short-haul growth has also been trimmed to 4.4% from 5.0%. For the third quarter, long-haul capacity growth is now seen at 4.4%, down from 5.1%, while short-haul growth is broadly steady at 5.2%, compared with 5.3% previously.
“Geopolitics continues to weigh on how airlines think about capacity deployment as demand adjusts,” UBS analysts wrote.
Fuel remains the other pressure point. UBS said jet kerosene prices are now up more than around 85% year-to-date and warned that pressure is likely to remain “on the upside” as a near-term supply squeeze becomes increasingly likely.