Airlines are facing yet more turbulence – expert assesses what they need to get through it

The war in the Middle East swiftly led to the cancellation of thousands of flights across the Persian Gulf. The crisis in the industry is severe, but aviation is no stranger to existential shocks. Over the last four decades it has faced the COVID pandemic, the 2008 recession, the September 11 attacks, the Gulf war and Sars.

This time around, the conflict wiped US$53 billion from the market value of the world’s 20 largest airlines in just its first three weeks.

Despite facing recurrent shocks, the industry provides a necessary service and often has state-level support – and so has survived. But it has not thrived. Aviation has been plagued by thin margins, frequent losses and a heavy and inflexible asset base in its fleets of aircraft (including long-term leasing arrangements). It also faces a long list of risks.

This war will be remembered as one of aviation’s greatest tests, delivering a pincer attack on the industry. On one side, fuel prices have doubled, with jet fuel surging from around US$87 to between US$150 and US$200 per barrel. On the other, revenue is in freefall due to closed hubs and suspended flights.

Fuel is typically the largest single component of airline operating costs, at around a quarter to a third of expenditure. It is also the most volatile. This is then followed by labour at around 25% and aircraft ownership costs at around 10–15%.

When fuel prices swing upwards they can wipe out an entire year’s profits, depending on the percentage that is unhedged (not acquired at a fixed price in advance). If at the same time revenue is collapsing, it is a perfect storm. At the end of 2025, the International Air Transport Association (IATA) forecast a profit of US$41 billion for the industry in 2026. But this now seems unattainable.

The race to survive

Only about one in seven airlines that have ever existed are still operating today. And while around 5,000 airlines have held international aviation codes over the years, only around 700 are now active. Bankruptcy is endemic in the industry, and the markets are already pricing in a higher risk of failure from the war.

The airlines most likely to fail are those with weak balance sheets, low operational efficiency, no state backing, and little or no fuel hedging (which leaves them fully exposed to sharp rises in costs).

Yet within this brutal landscape, a handful of airlines have not merely survived successive crises but have consistently outperformed. This includes budget carriers, such as Ryanair, and flag carriers, such as Singapore Airlines.

What these airlines have in common, regardless of market segment, is cost discipline, high levels of agility and close alignment between their operations and their strategy (that is, ensuring that what they offer is in line with what flyers expect from them). This drives higher customer satisfaction. These are the capabilities that produce resilience in a crisis – and a faster bounce-back when it ends.

Ryanair is not directly exposed to Gulf routes. In fact, the crisis is boosting its demand, with a surge in European short-haul bookings reported as travellers avoid the Middle East.

But beyond this boost, Ryanair is one of the most efficient and profitable airlines in the world, with around 80% of its fuel hedged at around US$67 per barrel for the next year. Ryanair systematically locks in fuel prices 12 to 18 months ahead through forward contracts – a strategy that sacrifices potential savings if prices fall in exchange for certainty.

But this hedged figure is now a fraction of current spot prices. The airline is on track to become debt-free by May this year, with net cash exceeding €1.5 billion, a position that can only be dreamt about by most airlines.

And Ryanair is a textbook example of cost leadership – its efficiency delivers low fares for adequate quality, with 90% of its seats consistently occupied. Its cost base is so low that it can attract customers with fares that competitors cannot match.

Singapore Airlines, on the other hand, does have routes that transit the Gulf corridor. Yet on other measures, it has similar strengths. A majority of its fuel is hedged, it has a strong balance sheet and its operations are highly efficient.

Singapore Airlines is what strategists call an “ambidextrous” organisation; one that pursues seemingly contradictory objectives that most companies find impossible to reconcile, such as exceptional quality at low operational cost.

It positions itself on being consistently ranked among the world’s best airlines. On the one hand it accomplishes this through continuous innovation – things like its ultra-exclusive “suites” class or Starlink connectivity in-flight.

But this level of service is coupled with intense cost discipline. Singapore Airlines has for decades had one of the lowest cost figures in its segment. The focus on efficiency is constant. In 2025 the airline initiated a partnership with OpenAI to find more ways to streamline operations.

It’s also a dual-brand model, pairing the premium Singapore Airlines with the low-cost carrier Scoot. This allows the company to compete across segments without diluting either brand.

The lessons here are strategic and timeless, and they remain true to what aviation experts and strategists know about competitive advantage. Strive for operational efficiency. Build a strong balance sheet. Align your business model to your competitive positioning so that your customers keep returning (and will rush to return after a crisis).

But these principles are simple to state and difficult to execute. This is precisely why so few airlines manage it.

Loizos Heracleous does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.