New wave of consolidation on the horizon due to operating cost pressures
The aviation sector faces a serious test of resilience that could threaten the survival of less well-capitalised carriers. According to estimates from the International Air Transport Association (IATA), the combination of record-high kerosene prices and geopolitical turmoil creates pressure that is likely to result in a new wave of bankruptcies and takeovers within the industry. Airlines with low profit margins are particularly vulnerable, including a good number of low-cost carriers, which find it difficult to absorb sudden jumps in operating costs.
Conflicts in the Middle East further complicate the situation by reducing fuel supplies and closing important air corridors. Airlines are consequently forced to use longer, more expensive routes, so passengers should not expect airfares to fall in the near future. Many managers have already begun reviewing flight networks and closing unprofitable routes to preserve liquidity.
Aircraft delivery delays cost billions
Besides expensive fuel, the supply chain crisis poses a serious threat to operational planning. IATA has strongly criticised major aircraft and engine manufacturers. Delivery delays at Airbus and Boeing, together with engine problems, have disrupted fleet renewal plans worldwide. These disruptions are estimated to have cost the airline industry $11 billion last year.
There is considerable frustration in the industry as engine manufacturers report high profits, while airlines bear the brunt of operating losses due to grounded aircraft. Nevertheless, despite the challenges, IATA emphasises that the business model of low-cost carriers outside the US market remains stable, highlighting Ryanair's continued growth in Europe as evidence of the resilience of that segment.
Climate targets by 2050 in question
Although the focus is currently on financial survival, the issue of decarbonisation remains high on the agenda. IATA continues to insist on achieving net zero carbon emissions by mid-century, but the realisation of this plan is progressing significantly more slowly than predicted. The main obstacle is the excessively slow development and insufficient production of sustainable aviation fuels (SAF), which, along with an unstable political and regulatory framework, creates additional uncertainty for long-term investments.
