Auckland International Airport's (ASX:AIA, NZE:AIA) expected pace of passenger volume recovery has taken a hit from the Middle East conflict as airlines grapple with higher fuel costs, Jefferies said in a Thursday note.

Several airlines have trimmed capacity due to elevated fuel costs, and international seat capacity from Auckland Airport has consequently been cut for the fourth quarter, with seat growth slowing to 1% from 8.5% in February, the equity research firm said.

"Given the Middle East conflict is still ongoing, we see downside risks to current schedules for international capacity growth of 4.2% in [the first half of 2027]," Jefferies said. It added that airlines could resort to capacity discipline and pricing actions to shield margins in the face of fuel price-driven pressure on their cash flows and balance sheets.

Jefferies downgraded its passenger forecasts by 0.5% for fiscal year 2026, 2.5% for fiscal year 2027, and 3% for fiscal year 2028.

It cut its price target on Auckland International Airport to NZ$8.49 from NZ$8.64 while maintaining a hold rating, saying that it views the company's share price underperformance versus the sector and the market since late February as overdone.