(Bloomberg) -- Airlines are seeing prospects for a strong profit rebound from two years of coronavirus turmoil rapidly slip away after the price of oil reached $125 a barrel on Monday.

An oil shock triggered by Russia’s war in Ukraine is the latest blow to carriers that have already had to cancel some flights and reroute long-haul journeys to avoid shuttered airspace. The price of crude spiked after the U.S. said it would consider a boycott of Russian supplies.

Earnings are at risk in Europe, where higher fuel costs will add to widespread flight disruption, while carriers in the U.S. and Asia are largely unhedged and will feel the full impact of price rises.

Wizz Air Holdings Plc, the biggest discount carrier in eastern Europe, reversed its no-hedging policy Monday. It had already been cut off from Ukraine, one of its fastest-growing markets, where it has four aircraft stuck, and Russia’s second city of St. Petersburg.

Other European airlines are feeling the pinch, with No. 1 discounter Ryanair Holdings Plc and German giant Deutsche Lufthansa AG altering schedules. Surplus jets will be redeployed into Western Europe, setting up a supply-demand imbalance. That threatens to hurt ticket prices in a peak summer season on which travel firms have been pinning hopes for a rebound.

Airline stocks tumbled as oil neared $140 a barrel after the U.S. said it was mulling a ban on Russian crude imports, before easing to about $125.

Asian firms were rocked by the jump, with China Southern Airlines Co., the country’s largest carrier, closing 8.3% lower.

The slump continued in European trading hours as Wizz Air led declines with a drop of as much as 16%, while discount rivals Ryanair and EasyJet Plc lost 11% and 12% respectively. Network airlines in the region fell by similar levels.

Long-Haul Squeeze

Agency Partners analyst Sash Tusa said the squeeze will be worse for the latter group -- which includes Lufthansa, British Airways owner IAG SA, Air France-KLM, Finnair Oyj and SAS AB -- given the impact of diversions or lost routes and the fact that discounters generally have newer, more fuel-efficient planes.

“It damages long-haul airlines versus short haul,” he said. “A proportion of the international long-haul model is utterly broken as a result of not being able to overfly Russia.”

Long-haul carriers in particular might now find it “very hard to get through 2022” without a return to equity fundraising, something that will be tougher for those that lack government shareholders.

Jet-fuel prices have surged 50% year-to-date and are 74% above 2019 levels.

Airlines have been guarded about the likely impact, with only Ryanair in Europe putting a number to it. Chief Executive Officer Michael O’Leary said last week that while the carrier is 80% hedged at $63 a barrel through next March, the unhedged requirement will cost it 50 million euros ($55 million).

Clouded Outlook

While analysts still expect most European airlines to make a profit in the year ahead, those estimates don’t include the latest surge in crude. Hedges are much less robust in the second half, suggesting a greater financial hit if the crisis persists.

Air France-KLM, for example, has 72% of first-quarter consumption hedged and 63% for the following three months, according to an earnings presentation last month. But the proportion drops to 42% and 28% for the third and fourth quarters respectively.

Lufthansa said Thursday that the war has clouded prospects for a recovery and makes it impossible to provide an earnings estimate for 2022. The carrier is hedged on 63% of its fuel needs for 2022 at $74 a barrel.

Wizz cited “the high and volatile commodity environment” in capping fuel-cost exposure for the next four months, hedging 50% of its March requirement at $1,172 per metric ton and 40% of needs for the first quarter through June at $1,142, compared with a March 7 spot price of $1,300.

The Budapest-based company pared its capacity plans for the next two quarters to 30% and 40% above 2019 levels, after earlier targeting 50% growth by summer, Sanford C. Bernstein analyst Alex Irving said in a note. Wizz said it will continue to focus almost two-thirds of seats on central and eastern Europe.

U.S., Asia Vulnerable

First-half profit is likely to disappoint investors as fares falter, wages rise and higher energy costs also hit consumer spending on holidays and other trips, Bloomberg Intelligence analyst George Ferguson said last week, noting that U.S. carriers are largely unhedged.

“Investors believe that airlines will likely pass on the spike in crude costs to consumers in the form of fuel surcharge but are worried about the price elasticity of demand,” Citigroup analysts said in a research note Monday after meetings in the U.S.

Most Asian carriers, including those in China, also aren’t protected against oil price increases. After reporting huge losses in 2008, many airlines in the region reduced or abandoned hedging policies.

Among the few that still hedge are Cathay Pacific Airways Ltd. and Singapore Airlines Ltd., though they reduced their exposure after the pandemic wiped out travel demand.

As tough as the operating environment is becoming for global airlines, Russian flag carrier Aeroflot faces an even starker future, with many overseas routes cut off and sanctions hitting its supply of new and leased planes.

(Updates with earnings outlook for European airlines in 13th paragraph)

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