Air France-KLM : Liquidity positions and low leverage cover airlines from high fuel costs

European airlines closed up FY 2025 with a rather good feeling as Q4 2025 results showed good cost control capabilities which had been their main tailwind over the past 2-3 years. While the outlook for FY 2026 was to pursue the overall good performance, the war in Iran has created a different scenario. Demand continues to hold up driven by the premium segment and across all geographies. European airlines have added new capacity to the routes to and from Asia to gain market share due to Gulf airlines’ limited activities, while they are also well positioned to gain market share from US carriers given the latter’s limited hedging. That being said, significantly higher fuel costs could materially impact margins if the war does not end soon. Positively, and supported by their strong liquidity positions and low net leverage, European airlines should be able to comfortably withstand the current geopolitical volatility.