Rio de Janeiro., The sharp rise in jet fuel prices, driven by the conflict in the Middle East, is likely to push more airlines into bankruptcy and accelerate the consolidation of the sector this year and next, Willie Walsh, president of the World Air Transport Association (IATA), declared yesterday.
Airlines around the world are facing higher fuel costs, driven by the US-Israeli war against Iran, which has choked off jet fuel supplies in the Strait of Hormuz and disrupted key air corridors, forcing costly diversions.
Low-cost carriers have been among the hardest hit, lacking higher-margin revenue streams such as premium cabins, high-net-worth travelers and credit card loyalty programs.
The pressure is already being felt: US low-cost carrier Spirit Airlines went bankrupt last month, and it won’t be the last, Walsh said. “Unfortunately, I think there will be some airlines that will find it very difficult to cope with this high fuel price,” Walsh told Reuters at the annual IATA summit in Rio de Janeiro. He added that he expects some companies to go bankrupt and others to be acquired by larger companies.
Airlines are also expected to protect their margins by cutting unprofitable routes, while they are unlikely to lower fares soon, which have skyrocketed since the outbreak of the Iran war, Walsh noted.
Even so, the pressure does not spell the end of the low-cost airline model, which continues to thrive outside the United States, where the three big companies – United Airlines, Delta Air Lines and American Airlines – are displacing competitors in that market.
“I don’t think the low-cost model has failed; in fact, quite the opposite,” he said, citing Ryanair’s good results in Europe as an example.