A renewed tension in the Middle East and the resurgence in oil prices are posing pressure for vulnerable European airlines, with investors and industry executives seeing mounting signs that financially weaker carriers may be headed for a shakeout.
British budget carrier easyJet is nearing a U.S.-led takeover that would see the 30-year-old airline go private at a valuation far below its pre-pandemic peak, airBaltic is looking for short-term financing to stave off default and Norway's Norse Atlantic is undertaking a strategic review.
While much of the industry cleaned up its finances after the COVID-19 pandemic, the fuel spike has weighed on share prices and exposed the fragile balance sheets of some carriers that are now pondering restructurings, buyouts or even bankruptcy protection.
"We are pitching, I think, four or five very large airlines on restructuring situations just at the moment across Europe," Barema Bocoum, head of EMEA at financial advisory firm Interpath, told Reuters.
The global airline industry last month nearly halved its 2026 profit forecast, citing the Middle East conflict that has driven up fuel costs, disrupted key air corridors and exposed the fragility of a sector operating on thin margins.
Bankers, investors and analysts said the grinding Iran war, which sparked a huge jump in fuel prices this year, has compounded cost pressures that have persisted since the pandemic.
"It feels as though the cycle is over almost before it began," said U.K.-based aviation analyst Rob Morris.
The tougher environment has led airlines to temper expansion plans. Airbus this month revised down its 20-year passenger aircraft demand forecast as war and trade tensions curbed what had been a sharp post-pandemic rebound in activity.
"Airlines are mostly maintaining very modest growth in U.S., Europe and Southeast Asia," said aviation adviser and former sector banker Bertrand Grabowski.
"Apart from some exceptions like Turkish Airlines, carriers are mostly being very prudent in increasing capacity."
Elevated jet fuel costs, which can make up over a third of airline spending when prices are high, have triggered worries over the financial health of carriers this year.
While jet fuel prices have stabilized in recent weeks, renewed volatility in the Middle East has raised fresh doubts over whether weaker European airlines can generate enough cash during the crucial summer season to survive the winter.
"The smaller (airlines) are the ones probably in danger," said London-based aviation analyst James Halstead, adding that losing traffic in the key summer season could prove fatal for some carriers in an industry that relies heavily on available cash.
He said airlines may muddle through the summer, but could face bigger challenges early next year.
"The usual thing is that airlines run out of cash in February," he said.
Poland's LOT has been a suspected consolidation target for years and Latvia's airBaltic has seen the yield on its 2029 bond spike this year, reflecting higher perceived investor risk.
Norse's shares have collapsed to near zero since its high-profile listing in 2021. An airBaltic spokesperson declined to comment.
LOT said its performance over the past several years demonstrated the strength of its business model and long-term strategy. Norse did not respond to a request for comment.
The industry has often defied predictions of widespread failures by showing resilience to outside shocks, but some analysts say there are early warning signals that the bullish trend seen since the pandemic is wavering due to higher fuel prices.
Capacity plans, second-hand plane prices and the volume of bankruptcies are among the indicators analysts are watching for signs that the strong run is losing steam.
In the U.S., rising fuel, labour, maintenance and leasing costs have steadily eroded low-cost airlines' cost advantage and contributed to the collapse of Spirit Airlines in May.
Analysts have warned that budget carrier Wizz Air's balance sheet is vulnerable, making it a possible consolidation target.
The airline says it has enough liquidity, though CEO Jozsef Varadi told reporters in April he expected more bankruptcies to hit the sector at the end of summer as forward bookings for the less lucrative winter season slump.
He said, however, that Wizz might benefit from other companies' woes and pick up some routes from them.
"We remain opportunistic," he said.
Willie Walsh, director general of industry trade body the International Air Transport Association (IATA), told Reuters in June that some airlines would go out of business or be acquired by larger carriers, especially if fuel prices remain high.
"Unfortunately, I think there will be some carriers that will find this high fuel price very difficult to cope with," Walsh said.
