The Rolls-Royce (LSE: RR) share price has been flying high but now the air is starting to get a little thin. With a price-to-earnings ratio of almost 50, things could get turbulent from here.
In fact, I’m surprised it hasn’t already. Because the factor that triggered its recovery, now risks reducing the shares to stall speed.
Rolls-Royce shares took off when flights restarted after the pandemic. Civil Aerospace remains the group’s biggest business, generating roughly half of group revenues. Rolls makes money from selling engines, but the real rewards come from lucrative long-term maintenance fees linked to how many hours those engines spend in the air.
Civil Aerospace revenue climbed 15% to £10.4bn in 2025, while underlying operating profit surged 42% to £2.1bn.
Rising fuel prices threat
More flights mean more revenue, but there’s a problem. As the Iran war drags on, a barrel of Brent crude is back around the $100 mark. But the global price for jet fuel is even higher, at around $185, up from $90 at the start of the year. In Europe, it’s above $200.
That’s a problem for airlines. While many have hedged fuel prices we could see fuel shortages, price tickets and flight cancellations. Falling engine flying hours could hit Rolls-Royce’s lucrative aftermarket business.
Airlines may also defer new aircraft deliveries, while struggling carriers could cut routes or delay maintenance.
Defence to the rescue?
Rolls-Royce isn’t a pure aviation play. Its Defence division benefits from rising military spending, with governments ordering more engines for aircraft, ships and submarines. Defence revenue climbed 5.5% to £4.8bn in 2025. The order book hit £17.4bn.
That offers some protection if commercial aviation falters. Long-term defence contracts are less sensitive to oil prices or consumer confidence. Yet a full-blown energy shock could hammer government budgets and defence spending.
Powering ahead
Rolls-Royce’s Power Systems division, which supplies engines and power solutions for data centres, industrial and defence applications, is also on the up. Revenue jumped 19% to £4.9bn in 2025, while operating profit rose 60% to £852m.
Demand for electricity-hungry AI data centres could provide years of growth, helping offset weaker aviation demand. But an energy shock could hurt here too. Higher financing costs might delay data centre projects, while weaker economic growth could undermine industrial demand.
A high price to pay
Rolls-Royce is still barrelling along, despite Middle East worries. Pricier fuel doesn’t directly hit its bottom line, any damage will come from knock-on effects if fewer people buy flight tickets. A wider stock market sell-off is another risk to consider. It might also be an opportunity.
