The more than 11% drop in oil prices since Monday has brought welcome relief to the entire airline sector. On Tuesday afternoon, shares of Lufthansa—one of LOT Polish Airlines’ main competitors—jumped by over 6%. While investor sentiment is positive, a sustained recovery in the industry will require more than just cheaper oil or jet fuel.
The price of Brent crude has declined by over 11% this week—an exceptionally sharp move even by the volatile standards of the commodity market. The trigger was the announcement of a ceasefire between Israel and Iran, made by U.S. President Donald Trump. Markets reacted with surprise and relief. The drop in oil prices, combined with easing geopolitical tensions, sent a positive signal to airline stocks—assuming no new risk factors emerge, such as a sharp drop in bookings.
Jet fuel prices are not identical to oil prices, but they are closely linked. Jet fuel is refined from crude oil, and its final cost also includes refining, transport, storage, taxes, and the specific supply-demand dynamics of the aviation fuel market. Since fuel accounts for roughly 20–30% of an airline’s operating costs, cheaper oil directly lowers expenses. This can positively impact margins, particularly on medium- and long-haul routes. In a highly competitive environment, lower energy costs also give airlines more flexibility in ticket pricing or margin management.
From the demand side, falling oil prices can also serve as an economic stimulus, potentially boosting both consumption and travel activity. Furthermore, they reduce the risk of an inflation rebound—something that had concerned some investors in the longer term. For Lufthansa and other airlines, this could mean a double dose of good news.
Among five major publicly traded airlines globally, Lufthansa reported the highest annual revenue growth—9.9%. However, it also posted the lowest profitability, with an EBIT margin of just 3.8% over the past 12 months. This indicates higher costs, inefficiencies, or weaker pricing power. As such, its relatively low valuation—a forward price-to-earnings (P/E) ratio of 6.1—seems justified. For comparison, LOT Polish Airlines, which is not publicly traded, posted an EBIT margin of 8.1% in 2024—more than double Lufthansa’s.
Comparison of Publicly Listed Airlines
| Airline | Revenue Growth YoY (Q1) | Forward P/E Ratio | EBIT Margin (Last 12 Months) |
|---|---|---|---|
| Delta Air Lines | 2.1% | 8.9 | 9.3% |
| Lufthansa | 9.9% | 6.1 | 3.8% |
| Ryanair | 5.9% | 11.8 | 11.2% |
| Singapore Airlines | 2.0% | 15.7 | 8.9% |
| United Airlines | 5.4% | 7.5 | 9.9% |
| Average | 5.1% | 10.0 | 8.6% |
Source: Tickr
Singapore Airlines currently holds the highest valuation with a P/E of 15.7, although its EBIT margin is an average 8.9%. Ryanair leads in profitability with an 11.2% margin and commands the second-highest P/E at 11.8. Delta and United Airlines report above-average margins of 9.3% and 9.9%, respectively, yet their P/E ratios remain moderate at 8.9 and 7.5.
On Tuesday, Lufthansa shares surged by more than 6% during the day, and by Wednesday, the gain moderated to 3.5%. However, the German carrier’s stock still trades around 67% below its all-time high from 2018. This implies considerable upside potential over the long term. If oil prices remain low, Lufthansa could improve its margins. With fuel being one of its largest cost drivers, lower prices provide a direct boost to profitability.
That said, despite its low valuation, Lufthansa still faces operational challenges, as evidenced by its underwhelming margin over the past year. Cheap oil alone won’t be enough. Broader macroeconomic stability and strong travel demand are critical. Without these, the company’s growth potential remains limited. Geopolitical risks—particularly around the Strait of Hormuz—still persist. Supply-side uncertainties in the oil market remain, and sudden price spikes could again squeeze airline costs.
Data as of June 25, 2025, 12:00 CET
By: Paweł Majtkowski, eToro Analyst in Poland
Source: CEO.com.pl
