High oil prices caused by the Iran war have put the airline industry on alert. A leading U.S. low-cost carrier (LCC) recently declared bankruptcy after failing to withstand management troubles, and major airlines are lowering their earnings outlooks one after another.
According to major foreign media on the 3rd (local time), U.S. LCC Spirit Airlines abruptly declared bankruptcy in a statement the day before and canceled all flights. Spirit Airlines said, "Customer service will no longer be provided," and added, "We deeply regret that we have to suspend operations as of May 2, 2026." With this, Spirit became the first major U.S. carrier to shut down in 25 years.
Launched in 1992, Spirit Airlines became known for a business model of slashing expense to the extreme and selling ultra-low-fare tickets after private equity Indigo Partners acquired an equity stake in 2006. But as major airlines jumped into price competition and various costs such as labor rose after COVID-19, profitability deteriorated sharply. In Feb., it averted bankruptcy by agreeing with creditors to continue operations, but the Iran war broke out immediately afterward, dealing a direct blow with a surge in jet fuel prices.
Jet fuel accounts for about a quarter of an airline's operating costs. According to Reuters, Spirit had assumed in its initial restructuring plan that jet fuel would average about $2.24 per gallon in 2026 and $2.14 in 2027, but by late April the price had soared to about $4.51. As a result, survival became difficult without additional fundraising. Reuters said, "This bankruptcy shows how severely the oil shock from the Iran war can hit financially vulnerable airlines."
CNN said, "For airlines, jet fuel is the second-largest expense after labor," and added, "Major airlines have mitigated the impact by raising some fees and fares and reducing flights, but smaller carriers like Spirit are hurt if they raise the ultra-low fares set to attract customers."
In fact, the spike in jet fuel is squeezing the profitability of other LCCs as well. JetBlue is analyzing data to identify flights that cannot cover fuel costs, airport landing fees, maintenance expense and the like. It also recently secured a liability financing facility of $500 million (about 740 billion won), using up to 22 aircraft as collateral. This led some in the industry to even raise the possibility of JetBlue's bankruptcy.
JetBlue CEO Joanna Geraghty said in a recent internal memo that the company is operating "in a much tougher environment than expected at the start of the year regarding fuel prices," but dismissed the possibility of bankruptcy. The company plans to temporarily suspend its annual guidance, implement fuel-efficiency and cost-cutting measures, and further reduce second-quarter capacity by 1 percentage point.
Other major airlines are also issuing negative outlooks due to high oil prices. American Airlines warned in Apr. that fuel costs would increase by $4 billion and flagged the possibility of a loss in 2026. In its revised financial outlook, it said it could post an adjusted loss of up to $0.40 per share, or conversely earn up to $1.10 per share. That contrasts with just three months ago, when it expected adjusted net income of up to $2.70 per share.
United Airlines, which has recently been reducing its operating scale, lowered its annual guidance, and Alaska Airlines halted its outlook. Delta Air Lines and Southwest Airlines said they could readjust their outlooks if oil price volatility eases. In addition, global carriers such as Air France, Cathay Pacific and Lufthansa are cutting routes to save on fuel costs.
The Wall Street Journal (WSJ) reported, "Airlines around the world are struggling to respond to soaring fuel costs, resulting in billions of dollars in unexpected additional expense this year," adding, "Fare hikes and route reductions are inevitable to absorb the cost increases."