The US-Iran conflict has come as a brutal shock to Europe’s budget airlines. EasyJet (LON:EZJ) recently revealed a 70% drop in profits, attributed primarily to increasing fuel costs and later bookings. The company reported a pre-tax profit of £85 million between April and June compared to £286 million during the prior year period.

Ryanair (NASDAQ:RYAAY), on the other hand, reported a 34% drop in its pre-tax profits to €593m (£503m) between April and June, with sales remaining flat as the airline was forced to cut fares to stimulate demand. Ryanair (NASDAQ:RYAAY) also anticipates summer fares to be slightly lower compared to last year, mainly due to “consumer hesitancy” surrounding air travel.

The weak quarterly results for both airlines can be read as the latest sign of how the US-Iran conflict is exerting pressure on the companies, with oil prices remaining high and peace talks continuing. The pressure on Europe’s budget airlines could persist if geopolitical tensions continue to support higher oil prices. Investors are closely watching developments in the Middle East because sustained increases in jet fuel prices have historically weighed on airline profitability.

While fuel costs are hurting both airlines, their responses to the crisis could determine which stock emerges stronger when travel demand normalizes.

Bull Case

Between April and June, Ryanair’s (NASDAQ:RYAAY) revenue went up 1% to €4.4 billion between April and June, and the Easter holiday in April helped increase passenger numbers by 6% to 6.1 million. However, fares dropped by 6% as the airline brought fares down to entice flyers concerned about the Iran war.

In contrast, non-fuel costs for EasyJet (LON:EZJ) performed in line with expectations, with Q3 CASK ex fuel rising by 3% year-on-year. This performance was stronger when you remove the previous year credit from buying aircraft back. EasyJet (LON:EZJ) also reported that inflight retail, within ancillary revenue, is continuing to strengthen, with PBT per seat up 14% YoY in the quarter.

For fiscal Q1, Ryanair (NASDAQ:RYAAY) reported after-tax profit of €538 million ($616 million), ​down 34% from the prior year and short of a forecast of €579 million in a ​company poll of ⁠analysts. The company believes it is too early to map out a profit forecast for the whole year, as that would significantly depend on last-minute bookings over the rest of the summer.

However, Ryanair (NASDAQ:RYAAY) stated that it is better positioned than most rivals because 80% of its fuel requirements to the end ⁠of March ​2027 are hedged at $67 per barrel. It also stepped in to ​hedge 15% of its fuel needs for the coming year at $85 per barrel during the recent interim ceasefire. This fuel hedging allows Ryanair (NASDAQ:RYAAY) to lock in fuel prices in advance, shielding itself against sudden price increases. Its only exposure comes from the remaining unhedged portion. Ryanair’s (NASDAQ:RYAAY) extensive fuel hedging strategy thus provides greater protection against near-term fuel price volatility.

EasyJet (LON:EZJ), on the other hand, stated in its airline cost outlook that H2 FY26 fuel CASK remains uncertain due to price volatility, with 72% hedged at $726/MT. It added that every $100/MT movement in price equates to c.£35m fuel costs. EasyJet (LON:EZJ) has hedged a substantial portion of its fuel requirements but remains exposed to future price movements. EasyJet’s (LON:EZJ) management commentary, however, suggested optimism. Operational performance continued to improve from a strong base, with year-to-date on-time performance of 78%, up 2 percentage points year-on-year.

Customer satisfaction grew to reach 84% for the airline, up 3 percentage points year-on-year. EasyJet holidays attained 85%, an increase of 1 percentage point. Therefore, easyJet’s (LON:EZJ) demand trends suggest that consumers have not materially pulled back from travel despite geopolitical uncertainty.

Bear Case

Both companies face similar risks. EasyJet’s (LON:EZJ) outlook for the remainder of its financial year is dependent on “important remaining bookings, as well as fuel prices, which continue to be volatile”. EasyJet (LON:EZJ) remains exposed to the unhedged portion of its fuel consumption, which means further increases in oil prices could pressure margins. EasyJet’s (LON:EZJ) outlook thus remains heavily dependent on consumer booking trends during the remainder of the peak summer season. Management acknowledged that bookings beyond the month of departure still require some pricing incentives, suggesting that travel demand has not fully normalized.

Furthermore, while easyJet (LON:EZJ) has hedged a substantial portion of its fuel requirements, Q4 FY2026 fuel costs remain uncertain. Management noted that every $100 of fuel on the unhedged portion is the equivalent of GBP 35 million. Investors should therefore monitor both fuel price volatility and booking trends closely over the coming quarters.

Likewise, Ryanair’s (NASDAQ:RYAAY) future outlook may be decided by close-in bookings, shifts in consumer hesitancy, and summer pricing. Consumer spending also remains sensitive to economic uncertainty across Europe, which poses a travel demand risk. Management stated that it is still too early to accurately predict outcomes given the importance of last-minute bookings during the remainder of the summer season.

In addition, pricing is softer in the summer and is expected to continue being soft, with close-in bookings failing to make up for the price discounting the company had to do in H1. While Ryanair’s (NASDAQ:RYAAY) extensive fuel hedging strategy provides greater visibility into future fuel costs than many of its peers, weaker pricing or softer-than-expected travel demand could continue to weigh on profitability in the near term.

What Investors Should Watch Next

Investors should continue monitoring three key factors over the coming quarters: fuel price trends, summer travel demand across Europe, and booking behavior.

While both airlines remain vulnerable to fuel price volatility and shifting consumer demand, their approaches to navigating the current environment differ. Ryanair’s (NASDAQ:RYAAY) extensive fuel hedging strategy provides greater visibility into future fuel costs, whereas EasyJet’s (LON:EZJ) investment case appears to hinge more heavily on improving booking trends and operational performance. Investors will likely be watching whether fuel prices stabilize and whether summer travel demand remains resilient across Europe in the coming quarters.

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