European airline stocks slid sharply on Monday as crude oil surged more than 7% after US and Israeli military operations targeting Iran. The move sent shares across the region's carriers lower in early trading, raising fresh concerns about fuel costs and regional exposure for airlines and related sectors.
At 06:10 ET (11:10 GMT), shares of Jet2, Air France-KLM, Lufthansa, International Consolidated Airlines Group (ICAG), Wizz Air, Ryanair and easyJet were all trading lower, with declines ranging from 2.3% to 9.2%.
Investment bank Citi singled out Wizz Air as particularly vulnerable. In a research note, the bank pointed to the carrier's high direct exposure to Israel combined with comparatively low margins. Citi said that in a year when Wizz Air must expand capacity rapidly, the company may need to reassign aircraft to avoid affected routes - an operational pivot that could be costly. Citi characterised Wizz Air as 'sell/high risk.'
By contrast, Citi described Ryanair as the most insulated among the carriers it covers. The brokerage assigns Ryanair a 'buy' rating, citing significant fuel hedges, robust margins and minimal exposure to the markets currently at the centre of the conflict. Saudi Arabian low-cost carrier Flynas, rated 'neutral' by Citi, was identified as facing elevated risk due to heavy Middle East exposure and an early-stage fuel hedging programme.
Citi added a broader caveat for the industry: 'While the whole sector will likely be weak on Monday, should this become a prolonged conflict, these relative exposures reinforce our preference for western market exposure and strong balance sheets.'
Beyond the airlines themselves, J.P. Morgan highlighted knock-on effects across the European aerospace and defence landscape. In a March 1 research note, the brokerage said European civil aerospace stocks would likely face near-term pressure, while defence names could see gains amid heightened geopolitical risk.
J.P. Morgan identified BAE Systems as the stock with the greatest potential to rally, assigning it an Overweight rating and a price target of 2,400 pence. That target was stated against a closing price of 2,112 pence on Feb. 27.
Analyst David Perry at J.P. Morgan spelled out two central headwinds for civil aerospace. First, air traffic to and through the Middle East - which accounts for roughly 9% of global air traffic - was expected to remain weak for the period of hostilities. Second, a sustained rise in oil prices could push airlines to speed up retirement of older aircraft and engines. Perry noted, however, that aircraft retirements over the past seven years have been unusually low because of a shortage of new planes and a large fleet of grounded GTF engines, which may blunt immediate retirement pressure.
Perry also discussed potential currency effects. A stronger US dollar - a common byproduct of rising oil prices and geopolitical tension - could work in favour of MTU Aero Engines, which carries less hedging than peers, and Melrose through foreign exchange translation, according to the note.
On the defence side, J.P. Morgan argued there is a growing case for an enlarged US defence budget. The bank referenced President Trump saying in January 2026 that he wanted to raise the defence budget by 50% in fiscal 2027, a figure J.P. Morgan described as the opening position in negotiations with Congress, with a 20% to 30% increase considered more realistic.
J.P. Morgan also reported relative exposure to the US defence market among European makers, noting that BAE Systems derives roughly 44% of its sales from the US defence market - the highest among its European peers - followed by RENK at around 25%, Leonardo at around 23% and Qinetiq at around 18%.
The brokerage flagged potential restocking of US missile inventories as another demand catalyst. Media reports from June 2025 suggested that the US used between 15% and 25% of its entire THAAD interceptor inventory during that month's 12 Day War - roughly 100 to 150 units out of a total stock of approximately 650. J.P. Morgan noted that BAE Systems supplies the infrared seeker used in THAAD's guidance system and estimated BAE generates about $1 million per THAAD unit.
J.P. Morgan further observed that Iran had retaliated over the weekend with missile and drone strikes on Gulf states including the UAE, Bahrain, Kuwait, Qatar, Saudi Arabia and Oman, and suggested those countries might now boost spending on air defence systems.
The market reaction on Monday reflected a mixture of near-term sell pressure across airlines and selective strength for defence and certain aerospace suppliers, depending on exposure and hedging positions. For airlines, immediate concerns center on elevated fuel costs triggered by the spike in crude and disruptions to traffic flows in and around the Middle East. For defence and aerospace contractors, the potential for increased defence spending and restocking of munitions inventories points to differentiated outcomes within the broader sector.
Investors and industry participants will likely monitor oil prices, regional flight patterns, company-level fuel hedges and balance-sheet strength to gauge how the situation evolves and which names may prove more resilient over time.