Global airlines slash 2026 profit forecast on fuel shock from Iran war
Airlines are also expected to cut unprofitable routes to protect margins, while fares, which have surged since the start of the Iran war, are unlikely to fall soon, IATA Director General Willie Walsh said.
A sign with the logo of the International Air Transport Association (IATA) during the IATA's Global Media Day in Geneva, on Dec 6, 2023. (File photo: AFP/Fabrice Coffrini)
RIO DE JANEIRO: The global airline industry nearly halved its 2026 profit forecast on Sunday (Jun 7), citing conflict in the Middle East that has driven up fuel costs, disrupted key air corridors and exposed the fragility of a sector operating on thin margins.
The International Air Transport Association, which represents more than 370 airlines accounting for about 85 per cent of global air traffic, said in its annual report that it now expects the industry to post a combined net profit of US$23 billion in 2026, well below a previous projection of about US$41 billion and down from US$45 billion in 2025.
The downgrade underscores airlines' exposure to geopolitical shocks and fuel volatility. Even as passenger demand remains resilient, planes are flying fuller and revenues are set to rise to more than US$1.1 trillion.
"There are two major factors: one is the significant increase in jet fuel prices, which has gone way higher than I think anybody would have expected, and then the disruption to the airlines in the Gulf region, so that combination has led us to reduce the forecast," IATA Director General Willie Walsh told Reuters at the group's annual meeting in Rio de Janeiro.
Walsh said he expects some smaller airlines to go bankrupt or be taken over by bigger carriers this year and next as higher fuel costs bite. US low-cost carrier Spirit Airlines shut down last month, the first airline casualty of the Iran war.
Airlines are also expected to cut unprofitable routes to protect margins, while fares, which have surged since the start of the Iran war, are unlikely to fall soon, Walsh said.
"In an environment where demand remains pretty robust, but capacity comes down, that will likely lead to a situation where fares will remain elevated," Walsh said.
FUEL COST SHOCK WIPES OUT HIGHER REVENUES
The Middle East conflict, triggered by US and Israeli airstrikes on Iran, has forced airlines to reroute flights around closed or restricted airspace, adding hours to some journeys, increasing fuel burn and straining already tight capacity.
At the same time, oil prices have surged on fears of supply disruption, pushing jet fuel prices sharply higher and widening refinery margins, leaving airlines facing a steep jump in their largest cost.
Gulf airlines such as Emirates, Qatar Airways and Etihad Airways face the greatest operational uncertainty after a near-complete shutdown of regional airspace at the start of the conflict.
Walsh said most regions should remain profitable, though at lower levels, while Middle East airlines are likely to slip into the red due to the conflict and weaker demand.
Speaking to CNA in a separate interview, Walsh said he expects the Gulf to recover once stability returns.
"Most of the carriers are operating reasonable levels of capacity at the moment, but it's clearly much more challenging for them given they've had significant disruption to their networks and they're also having to face increase in oil price," he noted.
"But I don't believe that's a structural change. I expect the Gulf to regain its position once we see some stability."
Walsh also praised the region's airlines for their response to the disruption.
"You've got to give them credit for getting back into operation as quickly as they did," he said, estimating that most carriers are operating at around 80 per cent of their schedules despite the disruption.
IATA expects airlines' fuel bill to surge to about US$350 billion this year from roughly US$252 billion in 2025, with fuel accounting for nearly a third of operating costs.
That is eroding profitability per passenger, with airlines now expected to earn about US$4.50 per passenger, roughly half last year's level.
On the upside, IATA expects industry revenues to rise 9.4 per cent to around US$1.16 trillion this year, driven by steady travel demand, higher fares, and growing income from extras such as seat upgrades and onboard services.
Aircraft shortages are also squeezing the sector. Delivery delays at Boeing and Airbus are forcing airlines to keep older, less fuel-efficient planes in service for longer, raising maintenance bills and blunting efforts to improve margins, Walsh said.
ASIA-PACIFIC CARRIERS UNDER PRESSURE
Despite the current fuel shock, airline executives at the IATA gathering remained broadly optimistic about long-term growth prospects in Asia-Pacific, which is expected to drive much of the industry's future growth.
Strong travel demand continues to support the region, although concerns over fuel prices, aircraft shortages, infrastructure constraints and decarbonisation challenges remain.
Association of Asia Pacific Airlines Director General Wong Hong told CNA that low-cost carriers were likely to be more exposed to higher fuel costs than legacy airlines.
He noted that many do not hedge fuel purchases and that recent capacity adjustments suggested the crisis was having a greater impact on budget carriers.
Wong said the industry was keen to avoid further airline failures following the collapse of Spirit Airlines.
"Nobody wants another Spirit Airlines to happen, especially here in Asia," Wong said. "We all recognise this is a fuel crisis, and it's not normal."
He urged governments to engage closely with airlines to help address the challenges, while stressing that carriers were not seeking handouts.
Measures such as deferring airport-related charges, including landing and parking fees, could help ease cash-flow pressures, he said.
"We are also hoping that there will be some solutions in the Strait of Hormuz, which will then ease fuel prices and help us get back to a more normal state."
IATA's Regional Vice President for Asia Pacific Sheldon Hee added that airlines across the region were well placed to cope with the fuel shock.
"We already see airlines ... making adjustments to some of the capacity, especially within domestic and regional networks," he said at a press conference on the sidelines of the meeting.
"I do believe that by and large, the industry is in a good position to weather this current storm," he added.
