"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 LV281972596= spike this year, reflecting higher perceived investor risk. Norse's shares have collapsed to near zero since its high-profile listing in 2021.
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 WIZZ.L balance sheet is vulnerable, making it a possible consolidation target.
Willie Walsh, director general of industry trade body the International Air Transport Association, 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.
Analysts see cash strain building into next spring
"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 UK-based aviation analyst Rob Morris.
Airbus, airline executives and analysts turn more cautious
Airlines are mostly maintaining very modest growth in the 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 stabilised 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.
Airbus AIR.PA 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.
European airlines face renewed pressure from higher fuel costs
As renewed conflict in the Gulf drives up oil prices, airline investors and industry executives see mounting signs that Europe's financially weaker carriers may be headed for a shakeout.
British budget carrier easyJet EZJ.L 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 NORSE.OL is undertaking a strategic review.
While much of the industry cleaned up its finances after COVID-19, 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.
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