Lufthansa (DLAKY) Stock Tumbles Following Morgan Stanley Downgrade Amid Fuel Crisis

Key Takeaways

• Lufthansa could ground as many as 40 planes (approximately 5% of its total fleet) following Middle East fuel supply challenges
• Closure of the Strait of Hormuz has disrupted worldwide jet fuel availability, with Europe dependent on ~50% of supplies from Persian Gulf sources
• Morgan Stanley reduced DLAKY rating from “overweight” to “equal-weight,” cutting its 2026 EBITDA projection by 17%
• Elevated fuel expenses projected to deliver a €1.6bn cost impact and approximately €800m reduction in EBITDA
• Load factors anticipated to decline roughly 2% year-over-year starting Q3 2026, while capacity expansion trimmed from 4% to 2.5%

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Lufthansa faces mounting pressure this week as both a Wall Street downgrade and potential jet fuel shortages converge on the German aviation giant. The carrier stands among Europe’s most vulnerable airlines to ongoing energy market disruptions, and financial projections are beginning to capture this reality.

Deutsche Lufthansa AG, LHA.DE

CEO Carsten Spohr has instructed planning teams to develop contingency strategies across various disruption scenarios. The most tangible measure under consideration: removing up to 40 aircraft from service, representing roughly 5% of the carrier’s total fleet. Leadership seems committed to controlling expenses proactively rather than reacting to declining passenger demand.

The underlying issue stems from the practical shutdown of the Strait of Hormuz, a vital corridor for international jet fuel transport. Asian refineries have already begun scaling back operations accordingly, while Europe faces particular vulnerability — approximately half of all European Union and United Kingdom jet fuel originates from Persian Gulf imports.

This supply constraint extends beyond mere pricing pressures. The possibility of actual fuel scarcity introduces operational uncertainty that’s extremely difficult to mitigate through hedging, particularly for an airline already trailing competitors in fuel hedge effectiveness.

Wall Street Firm Reduces Rating and Profit Projections

Morgan Stanley downgraded Lufthansa to “equal-weight” from “overweight” this Wednesday, pointing to diminished earnings prospects and inferior fuel hedging compared to rivals including IAG and Air France-KLM.

The investment bank slashed its 2026 EBITDA forecast for Lufthansa by 17% — significantly deeper than the 6% reduction applied to IAG or the 10% cut for Air France-KLM. This disparity stems primarily from hedging strategies. Morgan Stanley noted that Lufthansa’s fuel hedging “remains less attractive vs. peers.”

In absolute figures, the bank projects a €1.6bn fuel cost increase for the year, driving an approximately €800m decline in FY26 EBITDA compared to previous estimates.

Capacity expansion targets were similarly reduced, dropping from 4% to 2.5%, while load factors are expected to contract around 2% year-over-year beginning in Q3 2026.

Ticket Price Increases Provide Limited Relief

On the revenue front, Morgan Stanley anticipates Lufthansa will implement fare increases. Passenger yields are forecast to climb +7% in Q2, +11% in Q3, and +11% in Q4 of 2026.

However, these revenue improvements won’t completely counterbalance the fuel cost surge. Legacy carriers typically enjoy stronger pricing leverage than budget airlines, yet Lufthansa still emerges weaker than European counterparts when evaluating overall fuel cost exposure.

Notably, Morgan Stanley highlighted that Lufthansa’s year-to-date decline of approximately 9% remains substantially lower than the ~16% drops experienced by IAG and Air France-KLM, describing this disparity as “a disconnect we view as unjustified.”

The shares had surged as much as 8.1% during early Frankfurt trading Tuesday following initial news of the contingency planning — after having declined roughly 16% year-to-date at that juncture. Despite this temporary recovery, the downgrade and fuel outlook continue weighing on share performance.

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