US airlines face shakeout as fuel costs surge

U.S. airlines are bracing for a potential industry shakeout as soaring fuel prices threaten profitability, particularly for low-cost carriers, while larger airlines position themselves to gain market share.

Fuel now accounts for roughly a quarter of airline operating costs, and the recent surge in oil prices is emerging as the sector’s first major financial stress test since the pandemic, News.Az reports, citing Reuters.

Executives at United Airlines have signaled they are preparing for prolonged high fuel prices, with CEO Scott Kirby suggesting the environment could create opportunities to expand and absorb weaker competitors.

Delta Air Lines and United are widely seen as best positioned to weather the shock due to strong liquidity, lower debt levels, and higher-margin premium services.

Analysts warn that budget carriers face the greatest risk if fuel prices remain elevated. Companies such as JetBlue, Spirit Airlines, and Frontier Airlines are already under financial strain, with limited margins to absorb rising costs.

Because airlines sell tickets months in advance, they are often unable to quickly pass higher fuel costs on to customers, squeezing profitability.

Oil price scenarios modeled by United suggest Brent crude could reach as high as $175 per barrel, significantly increasing operating costs. Even at current levels, fuel expenses have already risen sharply compared to pre-conflict prices.

Other carriers, including American Airlines and Southwest Airlines, are also feeling the pressure, though stronger balance sheets may help them navigate the turbulence.

Analysts say sustained high fuel prices could widen the gap between strong and weak airlines, potentially leading to capacity cuts, increased borrowing, or even bankruptcies among struggling carriers.

While a wave of mergers is not immediate, a prolonged period of elevated costs could ultimately consolidate the industry and strengthen larger, more resilient airlines in the years ahead.

News.Az 

By Aysel Mammadzada