Rising prices spell bad news for British Airways owner International Consolidated Airlines Group (LSE:IAG) and other European airlines, said Deutsche Bank.
Pricing in a more turbulent outlook, analysts at the bank downgraded its view of many in the sector, cutting IAG, rivals Wizz Air Holdings PLC (AIM:WIZZ) and Deutsche Lufthansa all to 'hold' from 'buy'.
Analyst Jaime Rowbotham said he sees "a less positive outlook" for EU airlines after their 20% rally from the lows reached on 7 March in the aftermath of Russia’s invasion of Ukraine.
One of the key concerns is a hit to demand for flight from a "potentially weaker EU consumer, due to inflationary pressures on disposable income".
As well as their top line being dented, airlines' costs are also expected to take off on the back of elevated oil prices.
"We don’t expect the airlines to be able to pass all of the fuel cost headwind we now envisage on to customers, especially next year when those headwinds look set to be greater and by which time we think some of the pent-up demand for travel post the COVID-19 pandemic will have already played out," Rowbotham said.
Deutsche cut its forecasts for underlying profit (EBITDA) for the sector by 15% on average for this year and next.
IAG's share price target was cut to 155p from 220p, with that for Wizz Air slashed to 2900p from 5450p.
Budget airline easyJet was kept at 'hold' with the target cut to 570p from 680p and Ryanair kept at 'buy', with the target cut to €17.5 from €20.