Jet fuel shock from Iran war to trigger airline bankruptcies and consolidation, IATA chief warns

Global airlines are bracing for a wave of bankruptcies and a sharp drop in profitability as the war in Iran chokes jet fuel supplies and disrupts key air corridors, industry leaders warned at the International Air Transport Association's (IATA) annual summit in Rio de Janeiro.

Bankruptcies and consolidation ahead

IATA Director General Willie Walsh said the high fuel price environment will prove too difficult for some carriers to manage. "Unfortunately I think there will be some carriers that will find this high fuel price very difficult to cope with," Walsh told Reuters. He expects some airlines to go out of business and others to be acquired by larger carriers. The strain is already visible: US budget carrier Spirit Airlines collapsed last month, and Walsh said it will not be the last. Budget airlines have been among the hardest hit, lacking higher-margin revenue streams such as premium cabins, high-paying travelers, and credit card loyalty programs.

Unfortunately I think there will be some carriers that will find this high fuel price very difficult to cope with.

Despite the pressure, Walsh said the low-cost model is not broken. He pointed to Ryanair's strong performance in Europe as evidence that the model continues to thrive outside the United States, where the big three carriers — United Airlines, Delta Air Lines, and American Airlines — are squeezing out budget competitors. "I don't see that the low-cost model is broken, in fact, quite the opposite," he said.

Profits halved despite rising demand

IATA's latest industry forecasts project a net profit of $23 billion for global airlines in 2026, roughly half the $45 billion estimated for 2025 and well below earlier projections of $41 billion. The sharp contraction in profitability comes even as passenger and cargo demand continues to grow. Jet fuel costs have soared since the US attacks on Iran, and the price remains about 57% higher than a year ago, though it has declined by almost 25% in the past month amid see-saw diplomatic efforts.

Middle East hubs under strain

The conflict has upended traffic flows through Middle Eastern hubs such as Dubai, Doha, and Abu Dhabi, creating acute challenges for Gulf carriers including Emirates, Qatar Airways, and Etihad. An Iranian attack that killed one person at an airport in Kuwait earlier in the week damaged a terminal used by foreign carriers. IATA regional VP Kamil Al-Awadhi said he believed repairs would take at least a year. "My personal guess, looking at the damage from the videos and pictures that were sent to me, it's going to take ages," he said. Kuwait will either need to fast-track a new terminal or allow foreign airlines to use domestic-carrier terminals, he added.

My personal guess, looking at the damage from the videos and pictures that were sent to me, it's going to take ages.

Despite the disruption, Walsh said he did not think the conflict would do permanent damage to the Gulf as an aviation hub, given its strategic geographic importance and the capacity of Gulf carriers, which account for 14% of global supply and cannot be replaced by airlines from other regions.

Order books hold, but caution emerges

Al-Awadhi said deferring jet orders would be unwise for Middle Eastern carriers because long waiting times mean deferrals would be costly in the long term. "The plan is to continue where we're going... even though this is a hiccup," he said. However, Embraer CEO Francisco Gomes Neto noted that some airlines are delaying decisions to exercise purchase options. "Some companies that could be exercising previously signed options are leaving that a bit further ahead to better understand how the situation will evolve," he said. The Brazilian planemaker has not seen requests to defer deliveries or a slowdown in active sales campaigns.

European summer and fuel supply

IATA's European VP Rafael Schvartzman said sufficient jet fuel should be available for the summer season. "The expectation is that fuel for the summer will be available," he said. Airlines are rationalising flights to deal with higher costs, and European consumers are choosing to travel closer to home. Forward bookings for May and June are flat, with intra-European travel slightly up and long-haul bookings down. Walsh warned in a publication for the meeting that jet fuel shortages could emerge in coming months in parts of the world, especially in Asia and Europe. "And the extraordinarily high cost of jet fuel is increasingly being reflected in ticket prices," he said.

And the extraordinarily high cost of jet fuel is increasingly being reflected in ticket prices.

Mega-merger unlikely

Walsh dismissed the prospect of a blockbuster merger between United Airlines and American Airlines, an idea floated earlier this year by United CEO Scott Kirby and raised with President Donald Trump. "I don't think that's going to happen. I think the regulatory hurdles would be very significant," Walsh said, adding that he was unsure whether it was a genuine consolidation effort or an attempt to stir up media attention.