Soaring fuel costs could force more airline failures, mergers: IATA chief

Skyrocketing jet fuel costs, fueled by ongoing tensions in the Middle East, are expected to drive more airlines into financial distress and accelerate industry consolidation over the coming year, says Willie Walsh, director general of the International Air Transport Association (IATA).

Airlines worldwide are facing mounting expenses as the conflict involving the United States, Israel, and Iran has tightened jet fuel supplies and disrupted major flight routes, forcing carriers to take longer and more expensive detours.

Low-cost airlines have been especially vulnerable because they rely heavily on ticket sales and generally lack more profitable revenue sources such as premium-class seating, business travellers, and airline loyalty or credit card programs.

Walsh shared his outlook with Reuters at IATA’s annual summit in Rio de Janeiro.

“Unfortunately, I think there will be some carriers that will find this high fuel price very difficult to cope with,” Walsh told the outlet, adding he expects some airlines to go out of business and others to be acquired by larger carriers.

Airlines are also likely to defend profitability by eliminating routes that do not generate sufficient returns.

Meanwhile, ticket prices, which have climbed sharply since the start of the conflict involving Iran, are expected to remain elevated for the foreseeable future, Walsh said.

Despite these challenges, Walsh emphasized that the low-cost carrier model remains viable.

While budget airlines in the United States are facing increasing pressure (Spirit Airlines, for one, folded last month) from dominant network carriers such as United, Delta, and American Airlines, which are capturing a larger share of the market, low-cost airlines continue to perform well in many regions outside the U.S. market.

“I don’t see that the low-cost model is broken; in fact, quite the opposite,” he was quoted as saying, noting Ryanair’s success in Europe as an example.

One major merger is highly unlikely to materialize, Walsh believes, is the ambitious idea put forward by Scott Kirby, CEO of United, to acquire rival American Airlines and create a dominant force in the U.S. airline industry.

The proposal, which emerged earlier this year, never gained traction and ultimately failed to move forward, despite Kirby reportedly discussing it with U.S. President Donald Trump.

Delays in aircraft deliveries

Further compounding the industry's challenges are ongoing delays in aircraft deliveries from Boeing and Airbus, as well as production bottlenecks affecting engines supplied by GE Aerospace and Pratt & Whitney, a subsidiary of RTX.

The setbacks are restricting airlines' ability to grow their fleets and capture operational efficiencies.

Air Canada, as previously reported, is for one facing delays in the delivery of its new Airbus A321XLR jets.

Walsh said airlines are becoming increasingly frustrated with the persistent supply-chain issues, especially as engine manufacturers continue to report healthy profits while carriers face mounting financial pressures.

He estimated that supply-chain disruptions cost the airline industry roughly US$11 billion last year.

“We’re disappointed that they’re not moving faster. We’re disappointed that they’re not sharing the pain that the airline industry is sharing,” he said.

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