Airlines brace for an uncertain future despite anticipating robust earnings for the third quarter, as escalating geopolitical tensions and rising oil prices cast shadows over the industry’s financial landscape.

In the wake of a bustling summer marked by record post-pandemic travel levels, major European carriers are preparing for impressive third-quarter earnings. Analysts predict strong demand continuing into the year-end, notwithstanding surging inflation and fuel costs. James Halstead, a noted aviation analyst, underscores the robust performance of transatlantic and intra-European sectors. However, he cautions that restricted flight capacities are a double-edged sword, potentially driving ticket prices up due to surging demand.

Despite optimistic forecasts, the industry faces significant headwinds. The recent Hamas attacks in Israel on October 7 have stoked geopolitical unrest, contributing to elevated oil prices and adversely affecting consumer sentiment in Europe. The ripple effect of these developments could impose a financial burden on airlines.

Financial forecasts for key players in the industry reveal this dichotomy.

Air France-KLM anticipates a 33% surge in operating income, reaching 1.37 billion euros, with a 7% increase in revenue. Similarly, IAG expects a 28% growth in pre-exceptional items operating results, while Lufthansa foresees a 24% rise in adjusted earnings before interest and tax.

Hamas attack

However, the oil market’s volatility remains a concern. Brent crude approached $94 a barrel post-Hamas attack, with jet fuel prices experiencing a 5% uptick since the incident.

This surge reminds of the record highs following Russia’s 2022 invasion of Ukraine.

Airlines are already feeling the pinch, with Ryanair’s CEO Michael O’Leary warning of ticket price hikes. Similarly, Finnair cited fuel costs as a contributing factor to its diminished earnings. According to CEO Topi Manner, sustained high jet fuel prices could further push fare limits.

The industry’s fate might hinge on airlines’ fuel hedging strategies, influencing ticket prices and profitability in the coming winter. However, the question lingers: will increased fares deter travel demand?