IATA warns airlines face insolvency, mergers as fuel and fares surge

More airlines could face insolvency or be taken over by stronger rivals as jet fuel prices rise because of the conflict in the Middle East, Willie Walsh, director general of the International Air Transport Association, said on Saturday (June 6).

Airlines worldwide are facing higher costs after the US and Israel’s war with Iran squeezed jet fuel supplies and disrupted major air routes, forcing carriers to take expensive detours.

Walsh told Reuters at IATA’s annual summit in Rio de Janeiro that the pressure could drive further consolidation across the industry this year and next.

The impact is being felt especially sharply by budget airlines, which generally do not have the higher-margin income streams enjoyed by full-service carriers, such as premium cabins, high-paying travellers and credit card loyalty programmes.

The pressure is already visible.

US low-cost carrier Spirit Airlines collapsed last month, and Walsh said it would not be the final casualty.

“Unfortunately, I think there will be some carriers that will find this high fuel price very difficult to cope with,” he said, adding that he expected some airlines to go out of business while others would be bought by larger carriers.

Walsh said airlines were also likely to defend their margins by dropping loss-making routes.

Fares, which have risen sharply since the start of the Iran war, are not expected to fall back quickly, he added.

Even with those strains, Walsh rejected the idea that low-cost aviation itself was failing.

He said the model remained strong outside the United States, where United Airlines, Delta Air Lines and American Airlines are putting pressure on budget rivals. “I don't see that the low-cost model is broken; in fact, quite the opposite,” he said, pointing to Ryanair’s performance in Europe.

One major merger idea, however, is unlikely to become a reality, according to Walsh.

He dismissed United Airlines CEO Scott Kirby’s proposal to buy arch-rival American Airlines and create a dominant US aviation group.

The idea emerged earlier this year but did not progress, despite Kirby raising it with President Donald Trump.

“I don't think that's going to happen. I think the regulatory hurdles would be very significant. I don't know whether that was a genuine effort to pursue consolidation or Scott just trying to stir up some media,” Walsh said.

The conflict has also disrupted traffic flows through Middle Eastern hubs including Dubai, Doha and Abu Dhabi, creating serious problems for Gulf carriers such as Emirates, Qatar Airways and Etihad.

Walsh said he did not believe the region would suffer lasting damage as an aviation hub because of its geographic importance and the strength of its airlines, which account for 14% of global capacity.

“That capacity cannot be replaced by airlines from other regions around the world,” Walsh said. “Once things settle down, I would expect the Gulf carriers to regain their important position in the market.”

Airlines are also being held back by slow aircraft deliveries from Boeing and Airbus, as well as engine delays from GE Aerospace and Pratt & Whitney, a unit of RTX.

The shortages are limiting carriers’ ability to grow their fleets and improve efficiency.

Walsh said frustration in the industry was rising, particularly because engine makers were reporting strong profits while airlines were under pressure.

He estimated that supply chain disruption cost airlines about $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.

Aircraft and engine manufacturers have said many of the delays are beyond their control, citing post-pandemic supply chain problems and political trade disputes.

Walsh also said future competition would eventually come from China, where Comac is developing aircraft to challenge Boeing and Airbus.

However, he noted that the manufacturer still faces certification obstacles in Europe and the United States and remains dependent on Western engines and avionics. “Probably 10 to 15 years from now, people won't just talk about Airbus and Boeing. It'll be: Airbus, Boeing, Comac,” he said.

Financial pressure on airlines and weaker climate policy momentum in the US under Donald Trump have made industry leaders more cautious about meeting the sector’s 2050 net-zero emissions target.

Walsh said IATA was not prepared to walk away from the goal, but admitted progress had been slower than expected.

“I certainly believe it's more challenging to achieve net zero in 2050 because we've not made the progress that we had expected to see on the development of sustainable fuels,” he said.

Reuters