European airline shares have dropped sharply as growing violence in Iraq marks the end of an unprecedented period of low volatility in oil prices.
Brent crude hit a nine-month high of $115 a barrel on Thursday and has risen more than 5% since militants entered the Iraqi towns of Mosul and Tikrit on June 10.
Although jet fuel prices have not risen as much, airline shares have responded by falling sharply, the Financial Times reported.
European airline shares are down 13% in the same period, according to MSCI, the index provider.
Fuel costs account for a high proportion of European airlines’ costs. Although the region’s airlines typically hedge their costs more aggressively than their Asian and US counterparts – with some having hedged as much as 70% of their 2014 fuel needs – several will be caught out by the oil price rise.
HSBC analysts estimate that a $5 a barrel increase in the spot crude price will reduce operating profits for European airlines this year by between 1% and 52%.
Norwegian Air Shuttle, Europe’s third-largest low-cost carrier after Ryanair and easyJet, does not hedge any of its fuel requirements, according to the newspaper.
Ryanair dismissed the prospects of a long-term rise in oil prices on Friday.
Chief financial officer Howard Millar said: “This short-term thing happens all the time. It was Ukraine, now it’s Iraq, it will be something else. Every week that goes by in the fuel markets there is an event, this is just one in a long sequence.”
Ryanair has hedged 90% of its fuel requirements for this financial year at about $96 a barrel, which it says has generated savings of roughly €70 million compared with the previous year.