Ryanair CEO warns 40% jet fuel surge to trigger airline failures

Budget carriers face the highest risk of failure as jet fuel prices, which have surged more than 40% since the Iran conflict began, erode already thin margins, O'Leary said.

"More airlines will go out of business or be refinanced this winter if high oil prices and higher interest rates are sustained into autumn," Michael O'Leary, chief executive officer of Ryanair Group, said at an industry conference in Salzburg, Austria.

Jet fuel typically accounts for 25% to 30% of an airline's operating costs, making carriers acutely sensitive to price spikes. Spirit Airlines, which failed in May, saw fuel costs increase by $100 million over two months, according to the company. The ultra-low-cost carrier had $8.1 billion in debt against $8.6 billion in assets at the time of its collapse. American Airlines shares have fallen 13% this year to $13.30 as the carrier suspended six domestic routes through September.

The warning shows that the Iran conflict's disruption of global oil markets is reshaping the airline industry beyond temporary route cuts. Budget carriers, which lack the higher-margin revenue streams of full-service airlines to absorb fuel cost increases, are the most vulnerable. airBaltic has already required government support, O'Leary noted. If fuel prices remain elevated through the peak summer season, more carriers could face liquidity crises heading into the slower winter months, when revenue typically declines.

Spirit's collapse shows the risks for budget carriers

Spirit Airlines' failure in May illustrates the challenges facing low-cost operators. The airline built its business model around ultra-low fares, charging for everything from carry-on bags to beverages. When jet fuel prices spiked, Spirit could not raise fares without alienating its price-sensitive customer base. The company filed for bankruptcy protection in November 2024 and again in August 2025 before shutting down in May 2026, after a government bailout attempt failed.

"Spirit's business model simply wasn't sustainable," said Joe Moglia, a former CEO and leadership strategist. "They didn't provide a really good service to the marketplace, just the cheapest possible way for someone to get from point A to point B."

Route cuts spread across the industry as fuel costs climb

Major carriers have already begun scaling back operations. American Airlines suspended six domestic routes from Los Angeles and Charlotte through August and September. United Airlines cut 5% of its planned capacity, including off-peak flights and some Chicago O'Hare operations. Delta Air Lines suspended four routes through September, while Air Canada halted service on three routes, with some not expected to resume until 2027.

The West Coast has been particularly affected. Jet fuel prices in Los Angeles have jumped more than 40% since the conflict started, and the region's isolation from pipeline networks makes it more vulnerable to supply disruptions. "Fuel price is more susceptible to supply weakness on the West Coast than anywhere else in the country," United Airlines CEO Scott Kirby said in March. Norse Atlantic Airways canceled all of its summer flights from Los Angeles to Europe, while Allegiant Airlines rerouted its LA operations to Hollywood Burbank Airport to reduce costs.

The last time jet fuel prices rose this sharply was during the 2022 Russia-Ukraine conflict, when Brent crude topped $130 a barrel and several European carriers required state aid. That episode triggered a wave of consolidation, including the merger of Air France-KLM's maintenance operations and restructuring at multiple regional carriers. If history repeats, the current crisis could accelerate the shift toward fewer, larger airlines with greater pricing power, reducing competition and potentially raising fares for travelers.

This article is for informational purposes only and does not constitute investment advice.