Concerns Over Airline Bankruptcies Amid Rising Fuel Costs
A billionaire in the jet industry, based in Dubai, has raised alarms that many global airlines could be on the verge of bankruptcy due to the ongoing conflict in Iran, which is impacting travel demand and driving jet fuel prices higher worldwide.
Gediminas Ziemeris, Chairman of Avia Solutions Group, mentioned plans to shift most of its 145 jets from Europe to Asia and Brazil, given the disruptions created by the pandemic and the Middle Eastern conflict that are severely affecting European flights.
“We need to be ready for various local, regional, and geopolitical risks,” Ziemeris remarked in an interview.
He further indicated, “If this situation persists for over a month, we could see the initial bankruptcies of airlines globally.”
Airlines operating in the Middle East—like Qatar Airways, Gulf Air from Bahrain, and flydubai from the UAE—are facing their greatest challenges yet, with numerous flights canceled and evacuations involving passengers, crew, and aircraft.
Globally, airlines are also under pressure due to Iran’s blockade of the crucial Strait of Hormuz, which has pushed oil prices over $100 a barrel. This situation has led to longer flight paths, which require more fuel.
As of midweek, the average cost of jet fuel in cities like Chicago, Houston, Los Angeles, and New York had spiked to $4.56 per gallon, according to reports. This price surge is pressuring profit margins, as jet fuel and labor are typically the biggest expenditures for airlines. There are troubling projections of significant losses if the situation escalates.
Scott Kirby, CEO of United Airlines, highlighted in a memo that if the current oil prices persist, his airline might face an $11 billion loss, significantly more than its best annual earnings, and would need to raise fares by about 20%.
He acknowledged that while airlines currently have “time and space” to manage the increased fuel costs because customer demand for tickets remains strong, long-term sustained high oil prices could make it difficult to maintain operations.
Kirby compared today’s aviation challenges to those faced during a pandemic, stressing that repeating past mistakes could spell disaster for airlines if oil prices exceed $175 per barrel.
In recent statements, President Trump announced plans for a U.S. withdrawal from Iran in two to three weeks but pledged heavy military action, which raised investor concerns about potential long-term disruptions in energy supplies.
Air travel costs are expected to climb even higher this summer, as airlines have begun imposing various additional fees since U.S. and Israeli military actions against Iran commenced. For instance, JetBlue has raised its checked baggage fees in response to increasing operational expenses, hinting at a shift toward charging customers more for additional services.
JetBlue did not specify the increases, but reports indicate that domestic checked bag fees have risen to $49, a jump from previous rates shortly before the war began.
In contrast, Southwest Airlines has stated it does not plan to raise fares immediately due to economic conditions. Delta and United Airlines chose not to comment, while American and Alaska Airlines did not respond to inquiries.
According to Deutsche Bank, ticket prices have surged, particularly for last-minute flights, which tend to be favored by business travelers. The cost for flights booked within 24 hours for Asia, Europe, and other destinations has skyrocketed to an average of $1,900, a sharp increase from pre-war figures.
Ziemeris, valued at roughly $1.7 billion, operates primarily by renting Avia planes for short terms to airlines that already have their own pilots and crews. He noted a visible decline in demand but remains optimistic about surviving the current fuel crisis, suggesting that crises can often present unique opportunities, as seen after COVID-19.
