IATA warns on airline profitability due to Middle East war and knock-on fuel effects

The International Air Transport Association (IATA) released its latest financial outlook for the global airline industry showing a halving of profitability as a result of war-related Middle East disruptions and high fuel prices. The regional landscape, however, is highly differentiated. At the geographic center of the Middle East war, airlines in the Middle East are expected to collectively fall into the red with weak demand and operational disruptions. All other regions are expected to deliver profits, but at reduced levels from previous projections. Highlights include: Airlines are expected to achieve a combined total net profit of $23.0 billion in 2026, which is roughly half the previously projected $41 billion. It is also roughly half the $45 billion net profit estimate for 2025. The net profit margin is expected to be 2.0% in 2026, roughly half the previously projected 3.9%. It is also less than half the 4.2% estimate for the 2025 net profit margin. Net profit per passenger transported is expected to be $4.50, half the $9.10 achieved in 2025. Operating profit in 2026 is expected to be $48.0 billion (down from $76.4 billion in 2025) for a net operating margin of 4.1% (down from 7.2% in 2025). Return on invested capital (ROIC) is expected to be 4.3% (down from 6.6% in 2025). This is below the 8.5% estimated weighted average cost of capital. The gap highlights again the structural weakness of the airline industry where profitability shocks quickly erode capital efficiency. Total industry revenues are expected to reach $1.165 trillion in 2026 (up 9.4% on the $1.065 trillion in 2025). The passenger load factor is forecast to continue to set record highs with airlines expected to fill 84.0% of all seats over the year. That is an improvement on 83.5% in 2025. Passenger numbers are expected to reach 5.1 billion in 2026 (up 2.4% on 2025). Cargo volumes are expected to reach 71.7 million tonnes in 2026 (up 0.2% on 2025). “War-related disruptions in the Middle East and rising fuel costs have shifted the outlook for airlines to the worse. Globally, airlines are expected to see profitability halve compared to 2025. Profits will shrink from $45 billion in 2025 to $23 billion this year. And margins will shrink from 4.2% to 2.0%. All airline bottom lines are suffering from the rapid 70% rise in jet fuel prices. Some of the additional cost is being recuperated by adjusting prices and improving efficiency, but it will not be sufficient to maintain profitability at the previous year’s level. Smaller carriers that started the year with weak balance sheets are certainly struggling. At the regional level, all are in the black but with sharply reduced financial performance, with the exception of the Middle East. The Gulf carriers face operational uncertainty following a near complete shutdown of airspace at the outbreak of the war. These carriers are doing an amazing job maintaining connectivity, but major financial impacts are unavoidable,” said Willie Walsh, IATA’s Director General. Even in the best of times, the airline industry as a whole suffers from low margins and returns below the cost of capital. The oil price shock has tested airline financial resilience as net margins have been squeezed to 2.0% globally. “Airlines are bearing the brunt of the fuel price shock. While air fares are rising, airlines are still absorbing part of the hike in their bottom lines. Net profit per passenger is expected to fall to $4.50, half of what it was last year. Under the circumstances, that shows resilience. But it won’t even buy you a hot dog at most of the FIFA World Cup venues and it does not leave much of buffer should other costs or taxes start rising,” said Walsh. Outlook Drivers Overall revenues are expected to grow by 9.4% to $1.165 trillion. Revenue per available tonne kilometer (ATK) is expected to grow by 8.8%. Outside of the extraordinary period of the COVID recovery, an increase of this magnitude only occurred recently in 2008, when the jet fuel price rose by 40% year-on-year, and in 2010, following the 2009 global financial crisis and subsequent jump in the price of jet fuel. Despite significant improvements, revenue growth is expected to lag operating expense growth of 13% to $1.117 trillion, halving industry-wide net profitability to $23.0 billion in 2026. Major macro-economic factors impacting airlines are expected to deteriorate in 2026 with GDP growth reducing to 2.5% (from 3.4% in 2025), inflation rising to 5.0% (from 4.1% in 2025), and world trade growth falling to 1.9% (from 4.6% in 2025). Revenue Passenger ticket revenues are expected to reach $839 billion in 2026 (+9.2% on $768 billion in 2025). Considering this outpaces expected demand growth of 2.1% (measured in RPK or revenue passenger kilometers), air fares are rising in efforts to recoup some of the costs of the oil price shock. Passenger ticket yields are expected to grow by 7% and load factors are expected to set a new record high of 84.0%. Ancillary and other revenues are projected to rise by 12.6%, reaching $165 billion. Rapid growth of ancillary revenue is largely reflecting airline strategies to maximize customer revenues in the face of the oil price shock. For the first time since 2019, ancillary revenues will be a larger revenue contributor than air cargo. Cargo revenue is forecast to reach $162 billion in 2026 (up 7.2% on $151 billion in 2025). With cargo growth measured in cargo tonne kilometers (CTK) expected to expand by just 0.7% in 2026 (and just 0.2% in terms actual cargo uplifted), revenue growth is primarily driven by airlines recouping the higher costs from the fuel price shock. Cargo yields are expected to grow by 6.5% in 2026 (after three consecutive years of decline). Costs Fuel costs are expected to rise by nearly 40% from $252 billion in 2025 to $350 billion in 2026. This is based on an expected average price of crude oil at $95/barrel (Brent) for the year (up 37% from $69 in 2025). Jet fuel prices are expected to average $152/barrel for the year (up almost 70% on $90 in 2025). The crack spread (premium for jet fuel over Brent crude oil) is expected to average $57/barrel, an historic high. Globally, airlines have hedged roughly one third of their expected fuel consumption for 2026, which helps smooth short-term cost volatility but does not eliminate exposure to sustained price increases. Furthermore, many airlines hedge against movement in crude oil prices, as this market is more liquid, which leaves them exposed to increases in the crack spread. Total fuel consumption in 2026 is expected to remain unchanged from 2025, at 104 billion gallons. The rise in the price of jet fuel is therefore solely responsible for lifting the share of jet fuel in total operating expenses to 31.4% in 2026, up from 25.4% in 2025. Airlines also bear the cost of compliance with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), estimated to be between $1.2-1.6 billion, to offset CO2 emissions in the 28.8 Mt-81.5 Mt range. The additional cost of airline purchases of Sustainable Aviation Fuel (SAF) is expected to reach $4.3 billion in 2026 for an anticipated volume of 2.4 million tonnes of SAF being available (0.8% of total fuel consumption). This is slightly lower than previous estimates as the spread between jet fuel and SAF has dropped due to the appreciation of conventional fuel prices. Non-fuel costs are forecast to be $767 billion (+4.0% on $737 billion in 2025), of which labor costs are the largest component ($271 billion, +4.0% on 2025). The total labor force directly employed by airlines has reached 3.33 million (1.0% growth from 2025). Productivity per employee (measured in ATK/employee) has declined slightly (-0.4%) as airlines prioritize operational resilience in the face of disruptions, particularly in light of a larger share of newly recruited staff post-pandemic. The shortage of renewal aircraft also generates additional costs. Aircraft lease rates have risen to record levels, reflecting limited asset availability and strong demand from airlines seeking to expand or renew fleets. The older fleets that airlines are operating require more maintenance, raising costs in this area. A weaker US dollar further impacts the outlook. Last year, the US dollar depreciated by around 10% against most of its trading partners’ currencies, and this year it is likely to weaken by around 5% for the year (having lost approximately 2.5% by the end of April). At the margin, this is supportive of the global business cycle as well as of non-US dollar-based airlines. All invoices, notably fuel, and all debt denominated in US dollars become cheaper for airlines operating in currencies that have appreciated against the dollar. Risks and Constraints Supply chain challenges continue. Despite a gradual recovery in deliveries, supply conditions remain structurally constrained. Aircraft production is increasing but not at a sufficient pace to close the gap created during the pandemic. Deliveries remain below pre-COVID peak levels and are therefore still unable to shrink the accumulated shortfall. At the same time, demand for new aircraft remains strong, with orders continuing to exceed deliveries. As a result, the backlog reached 18,100 in May 2026, up from 17,000 in 2024 – representing over 50% of the active fleet. Airlines have so far been able to absorb a significant share of the missing capacity through a combination of operational and commercial adjustments. Airlines have extended the life of existing aircraft, increased daily utilization and operated at higher load factors, allowing them partially to offset the impact of delayed deliveries. The shortage not only raises costs but also caps growth. Notably, the lack of new aircraft halted gains in fuel efficiency in 2024 and 2025 for the first time in history, eliminating the airline industry’s regular progress on reducing CO2 emissions. In the current environment, with additional geopolitical disruptions affecting global supply chains, the risk is that this imbalance becomes entrenched. Elections bring uncertainty to the macro-economic outlook. More than 40 countries are expected to hold (or have already held) national elections in 2026, representing over 1.5 billion people worldwide and making it another pivotal year for democracy across the globe. Among the most closely watched elections are the US midterm elections in November, Brazil’s general election in October and Israel’s legislative election in October. Election outcomes will determine responses to inflation, trade tensions, as well as fiscal and monetary policy and more, as the energy crisis is reshaping government priorities across the world. Stagflation, the combination of slow growth and high inflation, would test industry resilience, in particular the capability of travelers to pay higher fares for an extended period of time. IATA polling gives cause for near-term confidence with 49% of respondents indicating they expect to pay more for travel over the next 12 months than they did over the past 12 months (with 43% saying they expected to spend about the same). While 83% indicated that they were more cost conscious, a similar number (86%) also said that they expect the price for transport to rise and fall reflecting developments in the oil price. Infrastructure constraints continue to impact the industry with rising costs and limits on growth. With insufficient infrastructure capacity available to meet demand, the war in the Middle East has become a particular concern for airport slot allocation rules. Rules enabling flexibility to avoid penalizing airlines are needed when airspace or airport closures/restrictions have limited the ability to use allocated airport slots. Similarly, economic regulators must ensure that any reduction in demand due to the war and its impacts are met with efficiency gains instead of rate increases. Regional Roundup Africa Net Profit Net Margin Profit per Passenger Demand (RPK) Capacity (ASK) 2026 (f) $0.1b 0.2% $0.40 10.0% 7.7% 2025 (e) $0.3b 1.6% $2.10 9.8% 8.7% Africa’s hub carriers are seeing the strongest growth in traffic as it re-routes to avoid the Middle East. However, the region’s profitability is expected to weaken as a result of cost-side vulnerabilities, particularly regarding the supply and price of fuel. Combined with typically lower aircraft utilization and weaker balance sheets, these factors will cap the revenue upside from shifting traffic flows, resulting in a lower expected net profit margin in 2026. Any gains are likely to be concentrated among the limited number of hub carriers with established connectivity linking Africa to Europe and Asia. Smaller and more fragmented operators are expected to bear the brunt of the challenging operating environment. Structural constraints continue. Weak infrastructure, fragmented airspace, and limited cross-border coordination reduce network efficiency and raise operating costs. In addition, limited financial capacity and access to capital restrict fleet expansion and network development. Asia Pacific Net Profit Net Margin Profit per Passenger Demand (RPK) Capacity (ASK) 2026 (f) $6.6b 2.1% $3.40 5.1% 3.6% 2025 (e) $9.8b 3.5% $5.30 7.7% 6.6% The Asia Pacific region relies heavily on crude oil imports from the Gulf and the lack of such supplies can cause more acute pressure on refineries and create jet fuel shortages as well as higher jet fuel prices than in other regions. This environment is already prompting capacity adjustments, and longer routings, caused by airspace restrictions, lead to increased fuel burn, tighter effective capacity, and higher unit costs. Demand fundamentals remain supportive with both domestic and international passenger traffic continuing to grow. In fact, some Asia Pacific carriers are benefitting from shifting traffic flows linked to the Middle East conflict, particularly on Europe–Asia routes. Cost pressures are amplified by the depreciation of several Asian currencies, which raises the local currency cost of US dollar-denominated expenses, most notably fuel. Disruptions at Middle Eastern hubs have created additional opportunities for Asia-based carriers to capture cargo traffic, particularly on Europe–Asia trade lanes. However, regulatory changes in Europe, including tighter customs requirements for low-value shipments, may weigh on e-commerce volumes. Overall, while cargo growth is likely to moderate, capacity constraints and rerouting effects should keep market conditions relatively tight. Europe Net Profit Net Margin Profit per Passenger Demand (RPK) Capacity (ASK) 2026 (f) $9.6b 3.1% $7.50 2.8% 1.3% 2025 (e) $13.0b 4.5% $10.30 5.3% 5.2% Highly reliant on Gulf imports for jet fuel, Europe is facing significant cost pressure. While some of this is mitigated thanks to a pre-crisis hedging ratio of 70% of its fuel needs, higher costs will feed through as hedges roll off. Europe has seen some traffic gains by providing direct connectivity between Europe and Asia, replacing some travel through Gulf hubs. However, parts of Europe are still suffering from airspace restrictions over Russia. Importantly, a weakening macro-economic backdrop, with slower growth and rising energy costs, is expected to weigh on household purchasing power. European airlines operate with cost pressures from onerous regulations, including SAF mandates, as well as elevated airport and air navigation charges. Ongoing industrial actions in several markets contribute to operational disruption and limit flexibility. These factors suggest that Europe’s competitive position could weaken yet further, even once market conditions normalize. Latin America Net Profit Net Margin Profit per Passenger Demand (RPK) Capacity (ASK) 2026 (f) $1.2b 2.1% $3.50 5.0% 3.3% 2025 (e) $1.9b 3.8% $5.90 7.2% 7.6% Latin America’s performance is influenced by the downward pressure on several of the region’s currencies resulting from the energy crisis. Demand conditions in Latin America remain more sensitive than in other regions, reflecting lower income levels, and a lower share of business travel in total demand for air transport. Cargo markets may soften, particularly in export-oriented markets. Structural demand drivers remain in place, however, suggesting a gradual rather than an abrupt adjustment. Latin American airlines typically operate with limited balance sheet flexibility and higher funding costs, which restrict their ability to absorb shocks or invest in fleet and network expansion. The EBIT to net margin ratio is about four times the global average underscoring this constraint which limits airlines’ capacity to respond dynamically to shifts in demand or cost conditions. The combination of these factors suggests that the region is likely to experience a more pronounced slowdown in growth, even if demand remains positive overall. Middle East Net Profit Net Margin Profit per Passenger Demand (RPK) Capacity (ASK) 2026 (f) -$4.3b -6.1% -$21.40 -11.4% -4.4% 2025 (e) $7.2b 9.4% $31.50 6.8% 5.9% Sitting at the center of the shock from the war in the Middle East, the region is expected to generate a net loss in 2026. Capacity reductions, flight cancellations, operational disruptions, and elevated fuel prices are all pushing up operating expenses. Meanwhile the loss of transfer traffic is weighing on load factors and raising unit costs. Several structural features support resilience in the region. These include a more favorable tax environment, relatively secure access to fuel supply, and comparatively low financial leverage. Moreover, its geographic position, established infrastructure, and dense network underpin long-term success. Cargo markets in the region are also under pressure. Disruptions have reduced effective capacity and triggered a reallocation of transit cargo traffic toward other regions, weighing on financial performance. The immediate recovery path is likely to be driven more by pricing than by a rapid return of volumes.  In the longer term, structural advantages should support a recovery in traffic, although potentially at lower margins, which could reshape the economics of the hub-based model. North America Net Profit Net Margin Profit per Passenger Demand (RPK) Capacity (ASK) 2026 (f) $9.4b 2.5% $8.10 0.8% 0.3% 2025 (e) $12.4b 3.5% $10.80 0.4% 2.0% As North American airlines have largely moved away from fuel hedging, jet fuel cost increases are transmitted more directly and rapidly into the region’s airlines’ cost bases. This creates strong incentives for immediate pricing responses to cover rapidly rising costs. Network carriers appear better positioned than low-cost operators to deal with domestic market softness. Low cost carriers are more exposed to domestic demand and typically lack a meaningful premium offering, limiting their ability to offset cost pressures through upselling and fare segmentation. North American airlines have delivered strong profitability in recent years and are relatively isolated from the operational shocks in the Middle East. Financial leverage, however, is comparatively high, increasing sensitivity to cost shocks, even as operating performance remains solid. Additionally, labor costs are elevated following recent wage increases. Overall, North America is likely to see a predominantly price-driven adjustment, with widening segmentation between resilient network carriers and more constrained low-cost operators. The Traveler’s Viewpoint Air travel continues to deliver exceptional value to consumers. While airfares have unavoidably risen in response to higher fuel prices, the average real return air fares (in US dollars, including ancillaries) are expected to be $462, which would be 26.3% lower than in 2016. An IATA public opinion poll conducted in April 2026 (15 countries, 6,500 respondents who have taken at least one trip in the past year) revealed that 97% of travelers expressed satisfaction with their last travel experience. Moreover, 88% agreed that air travel makes their lives better, 79% agreed that air travel is good value for money, 81% said they have lots of choices when shopping for air travel, and 88% said they cared about their ability to fly in future. Passengers are counting on a safe, sustainable, efficient, and profitable airline industry. The IATA public opinion polling demonstrated the important role that travelers see the airline industry playing: 89% agreed that air connectivity is critical to the economy; 88% said that air travel has a positive impact on societies; 83% said that the global air transport network is a key contributor to the UN Sustainable Development Goals (SDGs); 90% hope that future generations will be able to travel by air to experience even more of the world. The air transport industry is committed to its goal of achieving net zero carbon emissions by 2050. Travelers are expressing high levels of confidence in this endeavor with 80% agreeing that the industry is demonstrating commitment to work together to achieve its ambitious goal, 76% agreeing that aviation leaders are taking the climate challenge seriously and 78% saying that they believe we will be able to fly sustainably. The survey also revealed that traveler confidence remains high even with a proliferation of conflicts, including war. Overall, 41% said they were planning to travel more in the coming 12 months than in the previous 12 months (with an additional 52% indicating plans to travel at the same level). Some 91% said that flying is safe, with 85% saying it is safer today than ever. Travelers want to be informed with 86% saying they check government travel advisories when booking, 84% saying they are researching more before travel, 81% indicating that they are concerned about disruptions due to geopolitical conflict, and 71% saying they are booking closer to the date of travel to avoid surprises. Nonetheless, 68% indicated that they have not changed their travel habits at all. For Editorial Inquiries Contact: Editor Matt Driskill at [email protected] For Advertising Inquiries Contact: Head of Sales Sally Passey at [email protected]