Jet fuel price surge could spark airline dealmaking
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Illustration: Aïda Amer/Axios. Stock: Getty Images
Airline deal activity may heat up this summer, even if United has ended its pursuit of American Airlines.
The big picture: Global jet fuel prices are skyrocketing, and supply is dwindling, due to an Iran war that feels no closer to resolution today than it was several weeks ago.
- It's putting enormous pressure on airlines — particularly those that already might have been flying too close to the sun.
- Not just Florida-based Spirit Airlines, which the Trump administration may rescue, but also several European carriers
Driving the news: Michael O'Leary, CEO of Ireland-based budget carrier Ryanair, on Tuesday told CNBC that "you'll see European airlines fail" if jet fuel prices remain at $150 per barrel or higher.
- The average global price was $179 per barrel at the end of last week, including $187 per barrel in Europe.
- Even if the war were to end tomorrow, existing disruptions could keep prices inflated for months.
Zoom in: European governments have shown little historical appetite for bailing out flag carriers, travel industry analyst Henry Harteveldt tells Axios.
- "During COVID, there was minimal support for airlines," he says. "In some cases, there was help for employees, but nothing like what we had here in the U.S., where $50 billion was given to airlines."
- He adds that budget carriers like Ryanair, EasyJet and Wiz often now fly as many, if not more, domestic routes as some flag carriers — thus reducing the pressure on governments to act. Moreover, European Union rules could stymie bailout efforts.
Zoom out: That means you could have a bunch of airlines looking either for capital infusions or total takeovers.
- Delta jumps out as the most obvious U.S. suitor, given its history of buying minority stakes in other airlines. United also has clear acquisition ambitions, given the situation with American (which would be unlikely to buy, given its massive debt load).
- Middle Eastern carriers like Emirates also could have interest, although the war has weighed on revenue.
Yes, but: It's possible that even the deepest-pocketed airlines will choose to keep their powder dry, given the jet fuel price uncertainty.
- Harteveldt also suggests that one of the European budget carriers could seek to buy Spirit, or at least strike some sort of licensing deal.
The bottom line: If jet fuel prices don't come down, investment volume will go up.
