Having endured sustained turbulence through Covid, aerospace groups have been forced to turn the seatbelt signs on again as the latest Russia fears eat into their shares.
Rolls-Royce Holdings PLC (LSE:RR.), International Consolidated Airlines Group (LSE:IAG) and easyJet plc (LSE:EZJ) each saw steep drops in their share prices this morning as escalating tensions in Ukraine stripped back nascent recovery from the Covid pandemic.
On a day when Ukraine and its neighbours in Moldova and Belarus closed off airspace to civilian flights, airlines bore the brunt of the latest round of bearishness from investors.
Rolls-Royce’s shares were down 18.27% at 12:44 GMT to 96.27p, with investors responding negatively to this morning’s resignation announcement by Warren East, as the group's aviation revenue fell again.
In 2021 civil aerospace revenue was down 44% on 2019 figures, with fewer engine sales and repairs underscoring the dampened demand for air travel which now looks endemic.
“For investors, pandemic related outlook uncertainty now combines with heightened geopolitical tensions even before Russia’s invasion of Ukraine, and there’s still no dividend payment,” said Keith Bowman, investment analyst at interactive investor.
“In addition, the direction of required climate change transition using decarbonised energies for many of its transport related customers has yet to be established.”
While airlines continue to operate well below capacity, Heathrow recorded its lowest passenger numbers for nearly 50 years in 2021, well below forecasts and ensuring the Omicron-engulfed end of 2021 offered little respite.
But Rolls-Royce’s exceptional contraction today represents a premium loss on top of wider market sell-offs in the face of new headwinds.
British Airways owner IAG saw shares fall 8.06%, while easyJet contracted 8.45% as Russia invaded Ukraine.
Crude oil prices surpassed $100 a barrel today, marking the highest price for oil since August 2014, adding strain to the margins of airlines.
Fears are intensifying that the Russia-Ukraine crisis will be a protracted affair, and with it worries that the 35% of European oil supplied by Russia could be choked off.
“The surge in the oil price is terrible news for businesses and consumers, and fundamentally this clarifies one of the key impacts of the Russia/Ukraine war – it will serve to further stoke inflation,” said Russ Mould, investment director at AJ Bell.
Rising oil prices could meet with falling consumer confidence to deliver a sustained hammer blow for a travel sector optimistic that its worst days were behind it.