Kroll Bond Rating Agency (KBRA) releases its European Airlines: Clear Skies or More Turbulence Ahead? report in response to the ongoing challenges in the European airlines sector.

There have been 20 notable European airline bankruptcies since 2015, which has brought the region into focus for investors and other stakeholders alike. Amid continuing market saturation and competitive pricing—exacerbated by fuel price volatility, rising foreign exchange costs, and local euro area economic uncertainty—profitability growth in the region has started to stagnate and is forecast to decline in 2019. But despite these current headwinds, Europe’s aviation sector is poised to remain at profitable levels, albeit at lower levels.

KBRA notes that these headwinds are more likely to be felt by specific business models at risk rather than by all airlines in general, as was the case in post-financial crisis 2009, when the region recorded $5 billion in losses. In other words, airline exposure will vary based on business models, risk management savvy, as well as scale and economic conditions. We expect the European passenger airline market to remain in a difficult operating environment due to oversaturation, declining passenger yields, and volatile fuel and FX costs, which affect airlines of all sizes in the region. The potential for an economic slowdown in the region would further exacerbate an already challenging situation.

KBRA adds that the European airline sector is ripe for further consolidation as larger carriers continue to absorb smaller ones in difficulty—a credit positive for the airlines as a whole in Europe, given better scale and efficiency as well as less competition.

To view the report, click here.