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High Fuel Costs May Put Smaller Airlines Out Of Business

Rising fuel costs are often the biggest culprits of messing around with an airline company's budget. But while bigger corporations like Delta are able to mitigate those expenses by bringing in carbon-composite aircraft that are lighter and more energy-efficient than their aluminum counterparts, or by raising fares, and boosting prices on additional services like baggage handling, smaller and more independent airlines have a tougher go at it.

The costs of resources needed just to keep a plane in the air have already grounded Icelandic-owned Primera Air at the beginning of October. No sooner were the padlocks on the doors of its head office, than passengers relying on the service found themselves stranded at airports, frantically looking for flights from the competition to complete their trips.

It's a scenario that will likely repeat itself several times over, warns EasyJet CEO Johan Lundgren when he spoke at a travel trade convention in Spain.

“The fuel price being up there and perhaps continuing to increase will put some of those weaker players in a more difficult situation," he said. "I think there will be a consolidation from the fact that we’re going to see more failures.”

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Lundgren was particularly worried about European carriers dealing with costs, especially with the U.K.'s Brexit decision, which will soon pull them out of the continent's economic union. He predicted the need for a "barebones" deal that will provide smaller airlines some financial cushioning to endure fuel costs on flights across Europe. Otherwise, the CEO said the future for these independents is bleak, facing either bankruptcy or a takeover from a stronger player.

While Lundgren declined to name any companies that will be affected by rising fuel costs, so far in 2018, the currents are flowing in a direction that hardly bodes well for the industry. IAG, which owns British Airways, purchased a small part of Norwegian Air with intent to take over the rest of the company. Scandinavian company Ryanair even had its boss predicting it wouldn't survive the winter. And Iceland-based Wow is reportedly trying to raise around $300 million in capital to sell nearly half of the company via an initial public offering.

Fuel costs reportedly have also hampered the performance of such bigwig players as Delta, but not enough to prevent them from announcing, on October 11th, a profit of nearly $12 billion over the third quarter. Other U.S.-based airline giants like American, Southwest, and United are slated to announce their financial results later in October.

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