European airline shares have fallen 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 per cent 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. European airline shares are down 13 per cent 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 per cent 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 per cent.