Global airlines could face more bankruptcies and consolidation this year as soaring jet fuel prices driven by the Iran war push budget carriers to the brink, the head of the global airline body warned on Saturday.
Budget Carriers Bear The Brunt
International Air Transport Association Director General Willie Walsh told Reuters that he expects some airlines to go out of business and others to be acquired by larger carriers. “Unfortunately, I think there will be some carriers that will find this high fuel price very difficult to cope with,” Walsh said at IATA’s annual summit in Rio de Janeiro.
According to Reuters, budget carriers are absorbing the sharpest hit, lacking the higher-margin revenue streams such as premium cabins, high-yield travelers and credit card loyalty programs that larger airlines use to offset rising costs. Spirit Airlines collapsed last month, and Walsh said it will not be the last, with route cuts on unprofitable flying expected and fares unlikely to soften soon.
Jet fuel was last quoted at $141.64 per barrel, down 11.4% week over week, according to IATA’s Fuel Price Monitor citing S&P Global Platts data.
Earlier, Transportation Secretary Sean Duffy rejected the Iran war as the primary cause of Spirit’s collapse, calling its failure “self-made” due to a broken business model.
U.S. Budget Carriers Face Structural Squeeze
Walsh also pointed to Ryanair‘s strong European performance as proof that the budget model remains viable. In the U.S., United Airlines Holdings Inc. (NASDAQ:UAL), Delta Air Lines Inc. (NYSE:DAL) and American Airlines Group Inc. (NASDAQ:AAL) are squeezing out low-cost rivals. Walsh also dismissed United CEO Scott Kirby’s proposal to acquire American, citing significant regulatory hurdles.
The deal faces political headwinds too. Sen. Elizabeth Warren has publicly opposed the move, warning it would create an airline twice the size of its nearest competitor and leave consumers paying the price through higher fares.
Fuel Is Not The Only Issue
The financial strain runs deeper than fuel alone. Boeing Co. (NYSE:BA), Airbus, GE Aerospace and Pratt & Whitney, a unit of RTX Corp. (NYSE:RTX), delivery backlogs cost airlines roughly $11 billion last year, according to Walsh, who called on manufacturers to share the industry’s pain. Gulf carriers, which account for 14% of global capacity, face acute hub disruption at Dubai, Doha and Abu Dhabi, though Walsh expects their strategic position to hold in the long term.
At the same time, slower-than-expected development of sustainable aviation fuels is threatening the industry’s goal of reaching net-zero emissions by 2050. The setback adds further regulatory uncertainty to a sector already facing significant pressure.
Photo Courtesy: HarrisonKim1 from Shutterstock
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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