Global Airline Chiefs Address Iran War Fuel Crisis at IATA Summit in Rio
By Rajesh Kumar Singh
IATA Summit Confronts Industry Challenges Amid Iran War
RIO DE JANEIRO, June 4 (Reuters) - Global airline bosses gathering in Rio de Janeiro this weekend will be searching for answers to the industry's biggest crisis since the pandemic, with the Iran war driving up jet fuel costs, forcing flight detours and testing carriers' ability to raise fares.
The June 6-8 annual meeting of the International Air Transport Association (IATA) is the industry's biggest summit, bringing together hundreds of top executives from airlines, manufacturers, suppliers and financiers.
IATA represents more than 370 airlines accounting for some 85% of global air traffic, giving it a central role in a sector where profits were expected to reach a record $41 billion this year before the Iran war began.
Financial Outlook and Forecast Downgrades
Industry executives and analysts expect a downgrade to that forecast at the meeting, where discussions are expected to center on surging fuel prices and supply fears, disruptions to Middle Eastern airspace, deepening aircraft delivery delays and whether airlines are falling further behind on climate goals.
Airlines around the world have already been responding by raising fares, cutting unprofitable routes and conserving cash until pressures ease, raising more questions about whether they can meet IATA's goal of net-zero emissions by 2050 given the high cost and limited supply of sustainable aviation fuel.
Moody's Ratings last week cut its global airline sector outlook to negative from stable, saying fuel costs tied to the Iran war and disruption around the Strait of Hormuz would "materially reduce" operating profit this year. It said profits could fall by more than 35% in 2026 before recovering next year.
IATA data showed global passenger traffic contracted in April for the first time since the post-pandemic recovery, led by a sharp drop at Middle Eastern carriers.
Operational Impacts and Airline Responses
Route Adjustments and Airspace Closures
Air India's outgoing CEO Campbell Wilson said higher fuel prices and airspace closures were making some routes harder to justify.
"When you take on all those competitive dynamics, the added cost of this extra flying, the added cost to fuel, it just makes some routes uneconomic," he said.
Regional Impacts
Mixed Picture for Airlines
MIXED PICTURE FOR AIRLINES
Airlines with stronger demand and greater premium traffic have more room to raise fares, but the ability to recover fuel costs is uneven across markets and business models.
Southwest Airlines CEO Bob Jordan, whose carrier joined IATA last year, said U.S. carriers had raised fares on seven occasions since February without seeing demand weaken. But he said fares were still "not close" to covering current fuel costs.
Gulf carriers face a particular test. Emirates and Qatar Airways rely heavily on hubs in Dubai and Doha, while Etihad Airways is expanding again from Abu Dhabi after scaling back earlier global ambitions.
The Iran war has not broken the Gulf hub model, but detours have exposed its reliance on accessible airspace and stable routes, lengthening flight times and increasing fuel burn.
The disruption is also creating openings on some long-haul flows for airlines offering non-stop flights between Asia and Europe, including Lufthansa Group, Air France-KLM, Singapore Airlines and Cathay Pacific.
European and Asian Carriers
For European carriers, the picture is mixed. Some may benefit from Gulf airline troubles on long-haul routes, avoiding the most disrupted airspace, but higher fuel costs are compounding pressure from closed Russian airspace, air traffic control disruption and sustainable aviation fuel mandates.
In Asia, Air India faces higher fuel costs and longer routings, while IndiGo remains exposed to aircraft shortages and Pratt & Whitney engine issues. Currency weakness is amplifying fuel costs for Japanese carriers, while Air New Zealand has warned of a sharp earnings hit.
Latin American Airlines
In Latin America, the fuel shock is colliding with currency swings and consumers with limited room to absorb fare increases, even as limited competition gives some carriers more room to pass on costs. LATAM has cut its earnings forecast due to fuel costs, while Brazil's Azul remains exposed to fuel prices and currency volatility.
Aircraft and Engine Shortages
AIRCRAFT AND ENGINE SHORTAGES
Delayed Boeing and Airbus deliveries, meanwhile, are forcing airlines to keep older, less fuel-efficient jets in service, adding to margin pressure.
United Airlines CEO Scott Kirby said engines and components had become the key constraint, estimating that 800 to 900 aircraft worldwide were grounded due to engine issues.
"There are not enough engines and they're not going to be for many, many years," Kirby said at a Bernstein conference last week.
Industry Consolidation and Mergers
The fuel shock is also driving talk of sector consolidation, as airlines with thinner margins and less pricing power struggle to absorb higher costs, underscored by the collapse last month of U.S. no-frills pioneer Spirit Airlines.
U.S. firm Castlelake, an aircraft lessor and investor in Scandinavia's SAS, has said it is considering a possible offer for British budget carrier easyJet, while United's recent informal merger approach to American Airlines has put U.S. dealmaking back in focus, even after American rejected the idea and Washington signaled resistance.
(Reporting by Rajesh Kumar Singh; Additional reporting by Tim Hepher in Paris and Doyinsola Oladipo in New York; Editing by Joe Brock and Jamie Freed)
