UBS View: High Fuel Prices Could Pressure Profits
UBS said the airline industry's narrative has changed: post-pandemic capacity constraints have boosted pricing power for Asia-Pacific carriers. But in the short term, airline profits will inevitably come under pressure; conflict in the Middle East has pushed fuel prices up sharply and may trigger a fuel supply squeeze.
Fuel is a major cost: prolonged highs could squeeze margins
UBS Asia transport analyst Yang Yupeng said fuel is generally one of the largest cost items for airlines, averaging about 30% of total operating expenses. If fuel prices stay high for a long time, airline profits could face significant downside risk.
To ease cost pressure, airlines have raised ticket prices (though this may affect load factors depending on demand price elasticity) and cut flights (especially lower-margin routes), while also adding fuel surcharges to hedge. Even so, these measures cannot fully offset the impact of higher oil prices.
Demand shift: Middle East traffic moves to Asia, Europe routes improve
Meanwhile, due to the Middle East conflict, Yang Yupeng said some passenger traffic previously carried by Middle Eastern airlines has shifted to Asian carriers, helping demand on Europe routes improve markedly.
No recession scenario: profits could recover once oil-price pressure eases
In a no-recession scenario, given that aircraft and flight supply remain tight, UBS expects airline profitability to recover quickly once fuel-cost pressure eases.
Relatively speaking, Yang Yupeng noted that airlines with lower demand elasticity (such as those with a higher share of business travel), more fuel-efficient fleets, and more effective fuel-hedging strategies are expected to have stronger resilience and relative advantages. He said the fleet supply is still insufficient, so the medium- to long-term profit outlook for the airline industry remains positive.
(Reporter Lin Defen)
