As renewed conflict in the Gulf pushes oil prices higher, airline investors and industry executives are seeing mounting signs that Europe's financially weaker carriers may be heading for a shakeout, according to a Reuters report.
British budget carrier easyJet is nearing a US-led takeover that would take the 30-year-old airline private at a valuation far below its pre-pandemic peak, Reuters reports. Latvia's airBaltic is seeking short-term financing to avoid default, while Norway's Norse Atlantic is carrying out a strategic review.
While much of the industry cleaned up its finances after Covid-19, the recent fuel spike has weighed on share prices and exposed fragile balance sheets at some carriers now considering restructuring, buyouts or even bankruptcy protection. Barema Bocoum, head of EMEA at financial advisory firm Interpath, told Reuters his firm is currently pitching "four or five very large airlines on restructuring situations" across Europe.
The global airline industry nearly halved its 2026 profit forecast last month, citing the Middle East conflict for driving up fuel costs, disrupting key air corridors and exposing the fragility of a sector that operates on thin margins. Bankers, investors and analysts told Reuters that the grinding war in Iran, which sparked a sharp jump in fuel prices this year, has compounded cost pressures that have persisted since the pandemic. UK-based aviation analyst Rob Morris told Reuters it feels as though the cycle is over almost before it began.
Airlines turn cautious
The tougher environment has pushed airlines to scale back their expansion plans. Airbus this month revised down its 20-year passenger aircraft demand forecast, as war and trade tensions curbed what had been a sharp post-pandemic rebound in activity. Aviation adviser and former sector banker Bertrand Grabowski told Reuters that, aside from a few exceptions such as Turkish Airlines, carriers are mostly being "very prudent in increasing capacity."
Elevated jet fuel costs, which can account for over a third of airline spending when prices are high, have raised worries about carriers' financial health this year. While jet fuel prices have stabilised in recent weeks, renewed volatility in the Middle East has raised fresh doubts about whether weaker European airlines can generate enough cash during the crucial summer season to survive the winter. London-based aviation analyst James Halstead told Reuters that smaller airlines "are the ones probably in danger," since losing traffic in the key summer season could prove fatal for carriers in an industry that depends heavily on available cash. He added that airlines may get through the summer but face bigger challenges early next year, since carriers typically run out of cash in February.
Poland's LOT has long been considered a possible consolidation target, and Latvia's airBaltic has seen the yield on its 2029 bond spike this year, reflecting higher perceived investor risk. Norse Atlantic's shares have collapsed to near zero since its high-profile listing in 2021. An airBaltic spokesperson declined to comment when contacted by Reuters. LOT said its performance in recent years demonstrated the strength of its business model and long-term strategy, while Norse did not respond to Reuters's request for comment.
A history of resilience
The industry has often defied predictions of widespread failures by showing resilience to outside shocks, but some analysts say there are early warning signals that the bullish trend seen since the pandemic is wavering under the weight of higher fuel prices. Capacity plans, second-hand aircraft prices and the volume of bankruptcies are among the indicators analysts are watching for signs the strong run is losing steam.
In the United States, rising fuel, labour, maintenance and leasing costs have steadily eroded low-cost carriers' cost advantage and contributed to the collapse of Spirit Airlines in May, Reuters notes. Analysts have also warned that budget carrier Wizz Air's balance sheet is vulnerable, making it a possible consolidation target. The airline says it has sufficient liquidity, though its chief executive, Jozsef Varadi, told reporters in April that he expected more bankruptcies to hit the sector by the end of summer, as forward bookings for the less lucrative winter season slump. He said Wizz Air could still benefit from other companies' troubles by picking up some of their routes, adding that the airline "remains opportunistic."
Willie Walsh, director general of the International Air Transport Association, told Reuters in June that some airlines would go out of business or be acquired by larger carriers, particularly if fuel prices stay high, warning that "some carriers... will find this high fuel price very difficult to cope with."
Source: Reuters
