"We Can't Hold Out Any Longer": Airlines Reduce Seats, Cut Routes, and Face Bankruptcy Amid Crisis [Global Focus]

Seat and Route Reductions Amid Soaring Oil Prices
"Concerns Over Accelerated Restructuring in the Aviation Industry"

Global airlines are reeling as international oil prices have surged due to the Iran war. Difficulties are mounting, with airlines not only reducing routes but some even facing liquidity crises. There are growing projections that if the blockade of the Strait of Hormuz persists, it could escalate into a global aviation fuel crisis, accelerating restructuring within the airline industry.

Reuters Yonhap News

Reducing Seats, Cutting Routes... Airlines Tighten Their Belts

United Airlines, the world's second-largest airline, recently posted record first-quarter revenue of $14.6 billion, up 10.6% year-on-year. However, despite these strong results, the annual outlook shocked the market. The company lowered its annual earnings per share guidance from $12–14 to $7–11. United Airlines explained that the downward revision reflects the increased burden of fuel costs stemming from the spike in international oil prices.

Delta Air Lines has postponed issuing its updated annual outlook, while Alaska Airlines withdrew its previous annual guidance, reflecting the growing uncertainty caused by volatile international oil prices. In addition, the Association of Value Airlines, representing the U.S. low-cost carrier sector, recently sent a letter to Congress requesting a temporary tax break to ease the burden of soaring aviation fuel costs.

This is not just an American story. Airlines worldwide, including those in Europe and Asia, are tightening their belts. German carrier Lufthansa has decided to cancel approximately 20,000 short-haul flights by October. The company expects this measure will save more than 40,000 tons of aviation fuel. Previously, its affiliate CityLine announced that it would either retire all 27 of its aircraft early or exclude them from its operating program. Scandinavian Airlines also canceled about 1,000 flights due to high fuel costs.

Asian carriers such as Cathay Pacific in Hong Kong, AirAsia X in Malaysia, and Air New Zealand have reduced certain routes to save on fuel. The same applies in Korea. Korean Air and Asiana Airlines will apply the highest level—Level 33—of fuel surcharges to international tickets starting next month. Last month, Woo Keehong, Vice Chairman of Korean Air, officially declared an emergency management transition via the company intranet, stating, "If high oil prices persist for a long period, it will seriously hinder our ability to achieve our annual business targets."

Some airlines are on the brink of disappearing altogether. Spirit Airlines filed for bankruptcy protection for the second time in August last year. After reaching an agreement with creditors to cut billions of dollars in debt and lower aircraft operating costs, the company was set to exit bankruptcy protection by this summer. However, the recent surge in aviation fuel prices has disrupted these plans. As a result, the U.S. government is considering a bailout package of up to $500 million. U.S. President Donald Trump even mentioned the possibility of acquiring Spirit Airlines, suggesting that buying it at the right price and then reselling it for a profit once fuel prices stabilize could be viable.

Aviation Fuel Accounts for Up to 30% of Airline Costs

The reason global airlines are reacting so sensitively is that aviation fuel represents a significant portion of their operating costs. Typically, aviation fuel accounts for about 25–30% of an airline's expenses. The higher the price of aviation fuel, the greater the burden on costs. For Korean Air, first-quarter sales this year (on a separate basis) totaled 4.5151 trillion won, with fuel costs at 1.0812 trillion won—about 24% of total expenses.

International oil prices have soared since the outbreak of the Iran war. In early February, West Texas Intermediate (WTI) crude was around $60 per barrel. However, after U.S. and Israeli strikes on Iran, prices shot up to $110 per barrel. While prices have edged down recently on hopes for a ceasefire, the ongoing failure of a second round of talks has kept prices rising. As of April 24, prices are in the mid-$90s per barrel.

The problem is that even if international oil prices stabilize, aviation fuel prices may not return to normal quickly. According to Cornel Koster, CEO of Virgin Atlantic, in a recent Financial Times (FT) interview, despite the "good news" of a U.S.-Iran ceasefire, aviation fuel prices remain more than twice their pre-war levels. Koster emphasized, "This is a concern affecting the entire industry and all of us. No matter what happens in the Gulf region going forward, some of this disruption to global energy prices will persist."

Even if the blockade of the Strait of Hormuz is lifted and oil prices stabilize, it may take a long time for aviation fuel prices to fall, which would remain a burden for airlines. If refinery operations continue to face disruptions and logistical bottlenecks persist, aviation fuel prices could stay elevated for an extended period, even if crude oil prices ease somewhat.

The risk varies by region, but Europe is the most exposed. Europe imports approximately 75% of its aviation fuel from the Middle East. On April 16, Fatih Birol, Executive Director of the International Energy Agency (IEA), said in an interview with foreign media that Europe had only enough aviation fuel for about six weeks. He warned, "A wave of large-scale flight cancellations could follow."

Another concern is that the airline industry is heading into its peak season. As airlines pass on higher fuel costs to consumers, overall demand could weaken. Additionally, not only will fares and fuel surcharges rise, but reduced seat supply on popular routes could also make it much harder to secure reservations during peak periods. United Airlines CEO Scott Kirby stated that it may be necessary to raise ticket prices by 15–20% to offset soaring fuel costs. Air France-KLM has also raised ticket prices on its long-haul routes.

Aviation Fuel Crisis Could Shift from Price to Supply Issues... "Accelerating Industry Restructuring"

Up to now, rising aviation fuel prices have been the problem, but now the bigger concern is that the situation could turn into a supply crisis. Willie Walsh, Director General of the International Air Transport Association (IATA), said on April 8 (local time) after news of a U.S.-Iran ceasefire agreement, "Even if the Strait of Hormuz is reopened and remains open, given disruptions to refining capacity in the Middle East, it will still take several months for supply to return to needed levels." He added, "The Middle East is a key region not only for aviation fuel but for the supply of global refined products as a whole."

Amrita Sen, co-founder and Head of Research at Energy Aspects, explained, "While damage to refineries can be observed via satellite imagery, the extent of underground damage is the biggest concern. The uncertainty is greatest when restarting operations."

There are also predictions that the current high oil prices will eventually accelerate industry restructuring. JPMorgan Chase forecasts that continued high fuel prices will lead to a shakeout among low-cost carriers with weak financial structures. The bank also expects that after 2027, the market dominance of large airlines with strong brand loyalty will be further strengthened. Delta Air Lines CEO Ed Bastian also said during a recent earnings conference call, "It was high oil prices that triggered airline industry restructuring over the past decade, and this time, the structural change could be much larger than ever before."

This content was produced with the assistance of AI translation services.