Helen Martin had just booked a dream honeymoon for clients of her travel agency: Singapore for several nights and on to Langkawi in Malaysia, scheduled for early 2027. Then the Iran war began.
As soaring jet fuel costs pushed up flight prices across the industry, the itinerary was scaled back. Now, the happy couple’s plans are on hold.
“They want to wait and see if the prices come down,” says Martin, a UK-based agent at Travel Counsellors.
From once-in-a-lifetime luxury trips to cheap European weekend breaks, rising prices threaten to take the wind out of a global travel market that has been booming.
“We hear this a lot,” Martin adds. “People find they either have to downgrade their expectations or upgrade their budget.”
Over decades, steadily lower comparative costs have seen air travel move from the preserve of the wealthiest to something so common that most households in the west now expect to make at least one holiday flight a year.
Ryanair, Europe’s king of low-cost air travel, boasts that you can fly across the Continent for less than the price of parking your car at one of the regional airports it serves.
In response to the Iran conflict, the airline industry has cancelled thousands of flights that would have lost money when forced to use more expensive fuel. Early this month, Spirit Airlines went bust in the US, the first in what executives expect to be a wave of failures around the globe.
“The structural changes we are seeing … will expand,” Lufthansa chief executive Carsten Spohr said this month. “The stronger will become stronger, and the weaker ones will become weaker.”
Tony Fernandes, co-founder and chief executive of AirAsia, a budget airline based in Malaysia, agrees: “I get the feeling that there could be more mergers in store for even the bigger airlines,” he said.
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The winnowing of the airline industry, notorious for its low margins and cut-throat price battles, is a semi-regular occurrence. Most years see dozens of smaller carriers cease operations in bankruptcies that go largely unremarked upon outside of passengers or staff directly affected.
But every few years, a crisis sweeps through the sector like a wrecking ball, bringing with it a step change in consolidation.
“The airline industry has lots of problems very regularly,” says Andrew Lobbenberg, an airlines analyst for Barclays. “We have seen lots of crises – 9/11, Covid. This is the next Covid.” He predicts bankruptcies, mergers and more rapid “retirement of old aircraft”.
All this will make the industry stronger – but weaken the competitive forces that keep fares affordable, raising the possibility that an era of cheap airline travel may be drawing towards an end.
[ Tour operators record sharp decline in overseas holiday bookingsOpens in new window ]
“No airline wants to be cheap, they want to be profitable,” says Andrew Charlton, head of consultancy Aviation Advocacy. “Low-cost air travel was only ever a parenthesis. The era of £20 (€23.05) flights is for sure coming to an end.”
The last big crisis to sweep global aviation was the Covid-19 pandemic, when skies were emptied of aircraft. Many airlines received government assistance and laid off staff. Since then, the industry has ridden a profit wave.
An Airbus factory in France. Photograph: Caroline Blumberg/EPA
A period of so-called “revenge travel” when people spent lockdown savings gave way to a new normal of higher discretionary spending on airfares, especially in premium economy and business class.
Long delays in aircraft deliveries from Boeing and Airbus have left the industry with fewer planes than needed to meet demand, helping airlines maintain pricing discipline that is so often eroded in a push for greater market share.
Now, the Iran conflict has thrust the sector into its latest bout of disruption, with tens of thousands of flights cancelled and knock-on effects that have rippled across the world.
For Gulf carriers such as Emirates, Qatar Airways and Etihad, the conflict has severely affected operations. In the early weeks the region’s airspace closed, sapping customer numbers and forcing the carriers to ground aircraft.
But for most global airlines, the biggest impact from the conflict has not been the fighting, but the doubling of the global jet fuel price. Some 40 per cent of Europe’s kerosene comes through the Strait of Hormuz, the key arterial waterway that has been closed since the conflict started.
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Even once a lasting ceasefire is reached, it will take weeks, maybe even months, to remove mines from the area, and longer for the full flow of fuel to replenish the world’s diminished supplies.
The industry is attempting to combat public warnings of impending jet fuel shortages – some by guaranteeing to lock in holiday prices to sway nervous consumers.
As jet fuel begins to run dry in certain areas, airlines are resorting to logistical gymnastics to keep their planes in the air. Lufthansa has been routing some Cape Town flights via Namibia to refuel, while Malaysia’s AirAsia was at one stage carrying two flights worth of fuel to Vietnam in order to allow its planes to return without refuelling on the ground.
But beyond availability it is the price of jet fuel – which is airlines’ largest single cost even in normal times – that has caused worries of viability across the sector.
Every airline that has reported earnings since the conflict started has warned that higher costs will wipe out some or all of their profits for this year.
“It very much depends on what the late summer market is like, and obviously what happens to the conflict,” said EasyJet chief executive Kenton Jarvis in a call with journalists in mid-April, as his airline lost more than expected during the normally thin winter months.
Many in the industry are now wondering who, after Spirit, might be next to fall into bankruptcy.
No sooner had the conflict begun than investors started betting against the weaker airlines.
The number of “short positions” – an investing strategy to profit from a declining share price – in Hungarian low-cost carrier Wizz Air rose to almost a sixth of its entire shareholding.
Investors have raised concerns for years that Wizz has too many aeroplanes on order, including some long-range aircraft that it does not need after walking away from a botched attempt to enter the Middle Eastern market.
What is more, it competes at the fiercely competitive end of the pricing spectrum, placing it up against Ryanair, the ultra-lean Irish carrier whose laser focus on cost makes it one of the industry’s most formidable rivals.
Wizz Air passengers in Luton Airport pictures in 2023. Photograph: Steve Parsons/PA Wire
Last month, Wizz co-founder and chief executive József Váradi convened a special meeting for London journalists to emphasise the company’s financial viability.
“This is probably the most important chart today,” he said, as a slide appeared showing the company has €2 billion of cash left to fund its operations.
“There is a lot of noise out there, but I don’t really want to make a commentary on [the market], because simply all those bets are just untrue and unfounded.”
Over in the US, concerns are also rising about JetBlue and Frontier, two of the US rivals to the now-defunct Spirit.
A Southwest Airlines passenger jet in Austin, Texas. Photograph: Carter Johnston/The New York Times
While the US budget airlines raised their costs by buying newer aircraft in recent years, the big four network carriers – United, American, Delta and Southwest – were cutting prices and offering some no-frills seats, eating directly into the low-cost market.
“Some of the ultra low-cost carriers that were using old aircraft suddenly decided to buy new aircraft, and so their cost structures went up. I think that gave the opportunity to the legacy carriers to compete,” AirAsia’s Fernandes says.
“One of the things that Asia has is that demand has grown and continues to grow. The United States, Europe may have peaked in demand, and so everyone’s competing for a smaller pie.”
Europe’s airline sector has consolidated over decades, with many of the smaller operators either going bust or rolling into one of three mega-players: Air France-KLM, Lufthansa, and British Airways’ owner International Airlines Group (IAG).
IAG, whose stable also includes Iberia, Aer Lingus and Vueling, walked away from bidding to buy a stake in Portugal’s TAP this year.
But the group, which is flush with cash and has one of the industry’s strongest balance sheets, is open to making acquisitions.
“We are always surveying the market,” said chief executive Luis Gallego on a call for investors. “You have seen Spirit in the US. Some airlines are going to have difficulties, they will need to reduce capacity, that can be an opportunity for us.” What is more, the airline has already been approached by two rivals about co-operation, he told investors.
“We look for opportunities where we can apply the model we have for the group and can improve the performance of the different companies,” he said, but added: “It is not a ‘must’ to have more companies in the group.”
[ Tour operators record sharp decline in overseas holiday bookingsOpens in new window ]
In previous periods of crisis, airline executives have taken the opportunity to clean house and this time will be no different. One of the first likely targets is legacy planes that burn more costly fuel.
Just as the pandemic saw older jets removed by airlines – such as BA’s entire fleet of Boeing 747s, the original jumbo jet – analysts expect that higher prices will speed up retirements of less-efficient models.
Already, Lufthansa has said it will retire its older 747-400 models and some of its older Airbus A340s earlier than planned. The jumbo jets will be retired for the winter and will only return next summer if needed, the airline told investors this month.
Air France-KLM is considering phasing out its A330-200s next year, earlier than originally planned, “depending on how things play out,” according to its chief executive Ben Smith.
The biggest question is over the world’s A380 fleet. The goliath of the skies seats more than 500 people in a double-decker four-engine aircraft the size of a building. It burns more fuel than two A350s, the next largest model made by Airbus, put together, according to executives who have modelled running both aircraft.
Emirates, the world’s largest user of the aircraft, remains firmly wedded to the model and has frequently asked Airbus to make a similar-sized replacement.
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British Airways, which is spending millions of pounds revamping its first-class suites in its double-decker models, said they remain a core part of its arsenal.
Yet, for other carriers, the future is uncertain. Qatar Airways, the hardest hit of the luxury Gulf carriers because its country has a big US Air Force base, sent several of its A380s to a Spanish airport used for long-term aircraft parking. “You would hazard that they will not return,” predicts one industry executive.
Some airlines have also announced radical action to prune loss-making routes. Already, Lufthansa has cut 20,000 flights over the summer as rising fuel prices make the services unprofitable.
Even with newer planes, the industry faces billions in higher costs from its fuel bills.
European carriers are largely hedged, using futures contracts to lock in prices and smooth out volatility. But they are still having to buy some fuel on the open market – and must now decide when to start taking out future hedges at higher prices.
Many of the big US carriers gave up on hedging a decade ago, after racking up heavy losses betting against oil markets. This has left them fully exposed to higher prices, even though the US imports less kerosene from the Gulf than Europe or Asia.
Doha, in Qatar, is a major air transit hub. Photograph: Alamy/ AP
Then, there is the question of whether the crisis will redraw the world map. In normal times, a third of air traffic between Europe and Asia passes through the Gulf’s transit hubs such as Dubai or Doha. Before the conflict broke out, the region’s airports were drawing up expansion plans that would see them add several Heathrows-worth of growth in the coming decade.
Since then, direct flights between Asia and Europe have been completely full, even after steep price increases were introduced.
“I think what is turning out to be a great opportunity for us is customers that we did not have – or customers that we used to have – trying our service flying nonstop on routes where they may have been making connections before,” said Smith, the Air France-KLM chief executive, in an earnings call.
Once transit services restart, everyone in the industry expects Emirates, Qatar and Etihad to drop prices to convince travellers to return.
This will put the rest of the industry into a bind. Match the price cuts, and hit a bottom line already under pressure from soaring costs. Or refuse to discount, and see passengers seep back towards the Gulf.
“The draw of Dubai and the UAE has produced an economic operating model that is the envy of the planet,” Emirates boss Sir Tim Clark told an aviation conference in Germany last month. “Once this is over … it certainly won’t take much for Emirates to get back into the saddle.”
Not everyone is concerned. After all, handling the vagaries of the global oil market is part and parcel of running an airline.
Prices are not unprecedentedly high, says Steve Saxon at McKinsey. “Even at today’s highs, fuel costs are lower in real terms than they were in the 2008 spike, and similar to 2011-12 levels.” Airlines that are unhedged suffer more when costs rise, he adds.
But the longer the conflict goes on for, the worse the situation will get for the industry.
Analysts paint a bleak picture of rising costs that might send the industry into a downward spiral.
If costs keep rising – and as airline hedges unwind – more and more routes will become unviable. Services will be cut, which will raise the fixed costs for the airlines, forcing them to raise prices even more to compensate, and deterring passengers.
The rising cost of living will impact on travel decisions. Photograph: Chris Maddaloni/The Irish Times
At the same time, a longer war that sees households struggling to cope with rising petrol and food prices will, eventually, have a knock-on impact on travel spending.
“You get into that sort of dynamic which is not a good one for airlines … because you start to get more fundamental demand destruction,” says one senior airline adviser.
This does not augur well for the future of low-cost travel, particularly in Europe, where fierce competition and deregulation mean off-season tickets to fly across the Continent can sometimes cost as little as £17 (€19.51).
“As fares rise on the back of fuel costs, Europe’s low-cost carriers will exploit their overall lower cost base, hedged fuel supply and cash balance,” says Charlton of Aviation Advocacy.
Premium airlines will cut their short-haul routes to favour long haul, he predicts, reducing the competitive pressure and leading low-cost operators to steadily raise prices.
“As the legacy carriers continue to ‘rationalise’ their short-haul network, the low-cost carriers will be free to raise their fares, blaming the fuel price, to the point that the low-cost carriers risk litigation for misdescription,” he says.
For now, price freezes are in place for many of the budget carriers. Many have also come through crises before, and kept offering affordable flights.
But all this is happening as the industry enters the all-important summer months, the harvest season when planes are fuller and months of winter losses can be overturned.
“Winter could be a different matter,” says John Strickland, an aviation analyst.
“If we maintain these high prices, which seems likely … given lower demand and tougher trading in winter, airlines could take a chance to be much more brutal about what they don’t fly in the winter to compensate for the high fuel price,” he says.
Then, much steeper cuts to planes, routes and jobs might follow. If that happens, he adds, airlines will need to “batten down the hatches”. – Copyright The Financial Times Limited 2026