Why do airlines go bankrupt?

Airlines go bankrupt frequently because they combine enormous fixed costs with volatile revenue. Buying or leasing aircraft, paying crews, airport fees, maintenance and insurance all add up to expenses that barely change whether the plane flies full or empty, while ticket prices are set by fierce competition. IATA calculates that, even in the best years, the industry as a whole earns just a few net dollars per passenger carried, a margin that any unforeseen event can wipe out.

Jet fuel usually accounts for between a quarter and a third of operating costs, and its price can double within a few months. Many airlines hedge that risk with futures contracts, but a poorly calculated hedge can also ruin a company if oil prices fall. On top of that comes the exchange rate: aircraft, leases and fuel are paid in dollars, while tickets are sold in local currency. A sharp devaluation can multiply debt overnight, something that has sunk airlines in Latin America, Russia and India.

Crises hit air transport first. After September 11, 2001, Swissair and Sabena collapsed; the 2008 recession and the price war that followed finished off dozens of airlines; the 2020 pandemic emptied planes for months, and only public aid prevented a cascade of bankruptcies. Other times the cause is internal: growing too fast with a leased fleet, route networks without enough demand, poorly digested mergers, or business models that don't match real costs, as happened with Air Berlin in 2017 or Thomas Cook in 2019. Once the cash runs out, lessors repossess the aircraft and the end comes within weeks.