LATAM CEO Sees More Airline Capacity Cuts If Fuel Shock Persists

• LATAM Airlines CEO Roberto Alvo warned that the airline industry may need to cut capacity further if elevated fuel prices persist into 2027, noting that capacity adjustments may be the only way to “balance the equation” in the industry.
• According to Alvo, airlines with strong balance sheets and more premium travellers are better placed to absorb the fuel shock, while carriers with weaker finances or greater exposure to price-sensitive customers, such as ultra-low-cost carriers, would face more challenges.
• The pressure is already visible in airline financing conditions, as higher fuel bills are making borrowing costlier and affecting publicly traded bond prices. Notably, LATAM’s fuel hedges are not fully protecting the airline because current prices are above the range covered by those contracts. More broadly, airline hedging strategies have fallen short as jet fuel prices surged, meaning hedging can smooth margins but cannot fully shield carriers from sudden fuel-price spikes.
• Further, aircraft and engine supply-chain problems are expected to remain a challenge for another two or three years, forcing airlines to keep older planes in service for longer and adding further pressure to operating costs.
• According to the International Air Transport Association (IATA), Middle East disruptions and elevated fuel prices have halved the airline industry’s 2026 profitability outlook, as higher fuel costs and regional disruption weigh on demand, operating costs and flight activity. Global airline profits are now expected to fall to US$23Bn in 2026, down from US$45Bn in 2025, while industry margins are projected to narrow from 4.2% to 2.0%.

(Sources: Reuters & the International Air Transport Association)