"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 struggling as international oil prices have soared due to the Iran war. Route reductions are underway, and some carriers are even facing liquidity crises, adding to the challenges. There are also predictions that, if the blockade of the Strait of Hormuz continues for an extended period, it could trigger a global aviation fuel crisis and accelerate the restructuring of the airline industry.

Reuters Yonhap News

Reducing Seats and Routes... Airlines Tighten Their Belts

United Airlines, the world's second-largest airline, recently posted record-high first-quarter revenue of $14.6 billion, up 10.6% from the same period last year. However, despite these strong results, the airline's annual earnings outlook shocked the market. United Airlines lowered its annual earnings per share forecast from $12-14 to $7-11, citing increased fuel cost burdens from surging international oil prices as the reason for the downward revision.

Delta Air Lines has postponed updating its annual earnings outlook, and Alaska Airlines has withdrawn its previous annual guidance, reflecting heightened uncertainty due to oil price volatility. In addition, the Association of Value Airlines, representing U.S. low-cost carriers, recently sent a letter to Congress requesting temporary tax relief to ease the burden of soaring jet fuel costs.

This is not just a U.S. problem. Airlines worldwide—including those in Europe and Asia—are tightening their belts. German carrier Lufthansa has decided to cancel about 20,000 short-haul flights by October. The company expects this measure will save more than 40,000 tons of aviation fuel. Earlier, it also announced that all 27 aircraft owned by its subsidiary CityLine would be retired early or removed from flight operations. Scandinavian Airlines has also canceled about 1,000 flights due to high fuel costs.

Asian airlines 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 goes for Korean carriers. Korean Air and Asiana Airlines will both apply Level 33 fuel surcharges—the highest grade—to international tickets next month. Last month, Woo Ki-hong, Vice President of Korean Air, officially declared an emergency management mode via the company intranet, stating, "If the situation of high oil prices continues for an extended period, it will likely cause serious setbacks in achieving our annual business targets."

Some airlines are even facing the risk of disappearing entirely. Spirit Airlines filed for its second bankruptcy protection in August last year. After reaching an agreement with creditors to cut billions of dollars in debt and reduce aircraft operating costs, the airline had planned to exit bankruptcy protection by this summer. However, surging jet fuel prices have disrupted these plans. As a result, the U.S. government is now considering a bailout package of up to $500 million. U.S. President Donald Trump also mentioned the possibility of acquiring Spirit Airlines, suggesting that the government could buy it at an appropriate price and resell it for a profit once oil prices stabilize.

Jet Fuel Accounts for Up to 30% of Airline Costs

The reason global airlines are reacting so sensitively is because jet fuel constitutes a significant portion of their operating costs. Typically, jet fuel accounts for about 25-30% of airline expenses. The higher jet fuel prices rise, the greater the burden on costs. For Korean Air, first-quarter revenue this year was KRW 4.5151 trillion (separate basis), with fuel costs at KRW 1.0812 trillion—about 24% of total expenses.

International oil prices surged following the outbreak of the Iran war. In early February, West Texas Intermediate (WTI) crude was around $60 per barrel. However, after the U.S. and Israel attacked Iran, prices soared to $110 per barrel. Although prices temporarily fell on hopes for a ceasefire, the failure of a second round of talks has led to a continued upward trend. As of April 24, prices are in the mid-$90-per-barrel range.

The problem is that even if international oil prices stabilize, jet fuel prices may not return to normal levels quickly. Virgin Atlantic CEO Shai Weiss recently told the Financial Times (FT) that despite the "positive news" of a U.S.-Iran ceasefire, jet fuel prices remain more than double prewar levels. Weiss said, "This is a concern affecting the whole industry and all of us. No matter what happens in the Gulf region going forward, some of the disruption to global energy prices will persist."

Even if the blockade of the Strait of Hormuz is lifted and international oil prices stabilize, it may still take a long time for jet fuel prices to fall, which could be an ongoing burden for airlines. If refinery disruptions and logistics bottlenecks persist despite some easing in crude prices, jet fuel costs could remain elevated for an extended period.

While the situation varies by region, Europe is the most exposed to risk. Europe imports about 75% of its jet fuel from the Middle East. On April 16 (local time), Fatih Birol, Executive Director of the International Energy Agency (IEA), warned in an interview with foreign media that Europe has only about six weeks of jet fuel reserves left. He also cautioned, "There could be a wave of mass flight cancellations."

The fact that the airline industry is heading into peak season is another unfavorable factor. As airlines pass on higher fuel costs to consumers, demand could ultimately decline. In addition to fare hikes and increased fuel surcharges, a reduction in seat supply on popular routes could worsen the booking crunch during high season. United Airlines CEO Scott Kirby said ticket prices may need to be raised by 15-20% to offset soaring jet fuel costs. Air France-KLM has also raised ticket prices for long-haul flights.

Jet Fuel Crisis Could Shift from Price Problem to Supply Shortage... "Industry Restructuring Accelerating"

Until now, rising jet fuel prices have been the primary concern, but the possibility of a supply crisis is now a bigger worry. Willie Walsh, Director General of the International Air Transport Association (IATA), said on April 8 (local time), after news broke of a U.S.-Iran ceasefire agreement, "Even if the Strait of Hormuz reopens and remains open, considering disruptions to refining capacity in the Middle East, it will still take several months for supply to return to necessary levels." He added, "The Middle East is a core region for global refined product supply, not only for jet fuel but also for other refined products."

Amrita Sen, co-founder and head of research at Energy Aspects, explained, "While satellite images can verify damage to refineries, the extent of underground damage is the biggest concern. The uncertainty is greatest when restarting operations."

There are also forecasts that this period of high oil prices could ultimately accelerate industry restructuring. JP Morgan Chase expects that sustained high oil prices will lead to a shakeout among financially vulnerable low-cost carriers. The bank further predicted that after 2027, the market dominance of major carriers with strong brand loyalty will be further reinforced. Ed Bastian, CEO of Delta Air Lines, also said during a recent earnings call, "It was high oil prices that triggered the last decade's airline industry restructuring," and added, "This time, the current high oil prices could lead to an even bigger structural overhaul than before."

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