The International Air Transport Association (IATA) has released its latest global financial outlook for the airline industry, projecting that profitability will be cut in half due to route disruptions from conflict in the Middle East and elevated oil prices. However, significant regional variations are expected.

Carriers in the Middle East, at the geographical center of the conflict, are forecast to collectively fall into losses due to weak demand and operational disruptions. Other regions are expected to remain profitable, though at levels below previous forecasts.

Willie Walsh, IATA's Director General, stated: "The outlook for airlines has deteriorated due to the operational disruptions and higher fuel costs stemming from the conflict in the Middle East. Globally, airline profits are expected to be halved compared to 2025, dropping from $45 billion to $23 billion this year, with net profit margins shrinking from 4.2% to 2.0%. A rapid 70% surge in jet fuel prices is hitting the profitability of all carriers. While some of the additional cost is being recovered through pricing adjustments and efficiency gains, it is insufficient to maintain profitability at last year's level. Smaller airlines that entered the year with already weak balance sheets are clearly facing difficulties."

Regionally, all areas except the Middle East are expected to remain profitable, but financial performance will be significantly weaker. Following the outbreak of conflict, Gulf carriers face operational uncertainty due to the near-total closure of airspace. While these airlines have performed admirably in maintaining connectivity, significant financial impacts are unavoidable.

Even in the best of times, the airline industry operates on thin margins with returns below the cost of capital. The oil price surge is testing financial resilience, with the global net profit margin compressed to 2.0%. "Airlines are bearing the brunt of the fuel price shock. Although ticket prices are rising, carriers are still absorbing part of the increase through their own profit and loss. Net profit per passenger is expected to fall to $4.50, just half of last year's figure. In the current context, this demonstrates industry resilience. But this profit is not even enough to buy a hot dog at most FIFA World Cup stadiums; there is little buffer if other costs or taxes begin to rise," Walsh added.

Key Profit Drivers

Total industry revenues are forecast to grow by 9.4% to $1.165 trillion. Revenue per available tonne-kilometer (ATK) is expected to increase by 8.8%. Excluding the exceptional post-pandemic recovery period, the last time growth of this magnitude occurred was in 2008, when fuel prices rose 40% year-on-year, and in 2010 following the 2009 global financial crisis and subsequent fuel price spike.

Despite significant improvement, revenue growth is still expected to lag behind operating expense growth. Operating expenses are projected to rise by 13% to $1.117 trillion, leading to a halving of the industry's overall net profit to $23 billion in 2026.

Key macroeconomic factors affecting airlines are expected to deteriorate in 2026, with GDP growth slowing to 2.5% (down from 3.4% in 2025), inflation rising to 5.0% (up from 4.1%), and world trade growth falling to 1.9% (down from 4.6%).

Revenue

Passenger revenue in 2026 is forecast to reach $839 billion, a 9.2% increase from $768 billion in 2025. This exceeds the 2.1% growth in demand (measured in RPKs or revenue passenger kilometers), indicating that ticket prices are rising to recover part of the cost from the oil price shock. Passenger yields are expected to grow by 7%, with the load factor reaching a new high of 84.0%.

Ancillary and other revenue is projected to grow by 12.6% to $165 billion. The rapid growth in ancillary revenue largely reflects airline strategies to maximize customer revenue in the face of the fuel price shock. For the first time since 2019, ancillary revenue will become a larger source of income than air cargo.

Cargo revenue in 2026 is forecast at $162 billion, a 7.2% increase from $151 billion in 2025. Cargo demand, measured in cargo tonne-kilometers (CTK), is expected to grow by only 0.7% in 2026; in real volume terms, the increase is a mere 0.2%. Consequently, revenue growth is primarily coming from airlines recovering the higher costs imposed by the fuel price shock. Cargo yields are expected to grow by 6.5%, reversing a three-year declining trend.

Costs

Fuel costs are projected to rise by nearly 40%, from $252 billion in 2025 to $350 billion in 2026. This forecast is based on an average Brent crude oil price of $95 per barrel for the full year, up 37% from $69 in 2025. The average jet fuel price is expected to reach $152 per barrel, a near 70% increase from $90 in 2025. The crack spread—the premium of jet fuel over Brent crude—is forecast to average a record $57 per barrel.

Globally, airlines have hedged approximately one-third of their expected fuel consumption for 2026, helping to smooth short-term cost volatility but not eliminating the risk of sustained price increases. Additionally, many airlines hedge against crude oil price increases and face the risk of widening spreads due to greater market liquidity.

Total fuel consumption in 2026 is forecast to be flat with 2025 at 104 billion gallons. Therefore, the rise in jet fuel prices is the sole driver of the increasing share of fuel costs in total operating expenses: this share is expected to rise from 25.4% in 2025 to 31.4% in 2026.

Airlines also bear the cost of compliance with CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation), estimated between $1.2 and $1.6 billion to offset 28.8 to 81.5 million tonnes of CO2 emissions. The additional cost to airlines from purchasing Sustainable Aviation Fuel (SAF) in 2026 is projected to be $4.3 billion. The expected SAF supply is 2.4 million tonnes, representing 0.8% of total fuel consumption. This amount is slightly lower than previous estimates due to a narrowing price differential between conventional jet fuel and SAF as traditional fuel prices have risen.

Non-fuel costs are forecast at $767 billion, a 4.0% increase from $737 billion in 2025. Labor costs, the largest component, are expected to reach $271 billion, up 4.0% from 2025. Total direct airline employment has reached 3.33 million people, a 1.0% increase. Employee productivity, measured in ATK per employee, is expected to decline slightly by 0.4% as airlines prioritize operational resilience amid disruptions, particularly with a higher proportion of newly hired staff post-pandemic.

A shortage of aircraft for fleet renewal is generating additional costs. Aircraft lease rates have reached record highs due to limited available assets and strong airline demand to expand or renew fleets. Simultaneously, the higher average age of existing fleets requires more maintenance, pushing up related costs.

A weaker US dollar further impacts the industry outlook. Last year, the dollar depreciated by about 10% against most trading partner currencies; it may weaken a further 5% this year, having already depreciated around 2.5% by the end of April. Marginally, this is positive for the global business cycle and for airlines whose operations are based in non-US dollar currencies. For airlines operating in currencies that have appreciated against the dollar, the cost of all dollar-denominated bills, especially fuel, and all dollar-denominated debt decreases correspondingly.

Risks and Constraints

Supply chain challenges persist. Although deliveries are gradually recovering, supply conditions remain structurally constrained. Aircraft production is increasing but not fast enough to close the gap created during the pandemic. Deliveries remain below pre-pandemic peak levels, unable to reduce the cumulative shortfall. Meanwhile, demand for new aircraft remains strong, with orders continuing to outpace deliveries. Consequently, the order backlog reached 18,100 aircraft in May 2026, up from 17,000 in 2024, representing over 50% of the active fleet.

To date, airlines have been able to absorb most of the impact of missing capacity through operational and commercial adjustments. They have extended the service life of existing aircraft, increased daily utilization, and maintained higher load factors, partially offsetting the effects of delivery delays. The aircraft shortage not only drives up costs but also limits industry growth. Notably, in 2024 and 2025, the new aircraft shortage caused the first-ever stall in fuel efficiency gains, offsetting the long-term, steady progress the industry has made in reducing CO2 emissions. In the current environment, there is a risk this supply-demand imbalance becomes entrenched as additional geopolitically-driven route disruptions continue to affect global supply chains.

Elections introduce uncertainty into the macroeconomic outlook. In 2026, more than 40 countries are expected to hold or have held national elections, involving over 1.5 billion people globally, making it another key year for global democratic processes. High-profile elections include the US mid-terms in November, Brazil's general election in October, and Israel's parliamentary election in October. As the energy crisis reshapes government policy priorities, election outcomes will influence national responses to inflation, trade tensions, and fiscal and monetary policy. Stagflation—a combination of slowing economic growth and high inflation—will test industry resilience, particularly passengers' ability to sustain higher ticket prices over an extended period.

IATA survey results provide some confidence for the near-term outlook: 49% of surveyed travelers expect to spend more on travel in the next 12 months than in the past 12 months, with another 43% expecting spending to remain roughly the same. While 83% of travelers report being more cost-conscious, a similar proportion (86%) believe that transportation prices will rise and fall with oil prices.

Infrastructure constraints continue to impact industry development, increasing costs and limiting growth. With available infrastructure capacity insufficient to meet demand, the Middle East conflict poses a particular challenge to airport slot allocation rules. More flexible rules are needed to avoid penalizing airlines when airspace or airport closures/restrictions make it difficult to use allocated slots. Similarly, economic regulators must ensure that any demand decline due to the war and its effects is addressed through efficiency gains, not passed on through rate increases.

Regional Summaries

Asia-Pacific Airlines

The Asia-Pacific region, highly dependent on crude oil imports from the Gulf, faces potential greater pressure on refineries and jet fuel shortages with prices potentially higher than in other regions. Rerouting due to airspace restrictions leads to increased fuel consumption, tighter effective capacity, and higher unit costs. Demand continues to grow as domestic and international passenger traffic recovers. In fact, some Asia-Pacific carriers are benefiting from passenger traffic growth related to the Middle East conflict, particularly on Europe-Asia routes. Cost pressures are amplified by the depreciation of several Asian currencies, raising the local currency cost of dollar-denominated expenses, most notably fuel. Disruptions at Middle Eastern hubs have created more opportunities for Asian carriers to capture cargo traffic, especially on Europe-Asia trade lanes. However, regulatory changes in Europe, including stricter customs requirements for low-value goods, may pressure e-commerce volumes. Overall, while cargo growth may slow, capacity constraints and rerouting effects are keeping market conditions relatively tight.

North American Airlines

As North American carriers have largely exited fuel hedging, rising jet fuel costs are transmitted more directly and quickly to their cost base. This gives airlines a strong incentive to adjust prices immediately to cover rapidly rising costs. Compared to low-cost carriers, network airlines appear better positioned to cope with weaker domestic demand. Low-cost carriers, more reliant on domestic demand and typically lacking a scaled premium product offering, have limited ability to offset cost pressures through ancillary sales and fare segmentation. North American airlines have shown strong profitability in recent years and are relatively less affected by operational shocks in the Middle East. However, their relatively high financial leverage increases sensitivity to cost shocks even with robust operational performance. Furthermore, labor costs are elevated following recent wage increases. Overall, adjustment in North America is likely to be primarily price-driven. The divergence between more resilient network carriers and more constrained low-cost carriers is expected to widen.

European Airlines

Europe, heavily reliant on jet fuel imports from the Gulf, faces significant cost pressure. Although European carriers had hedged about 70% of their fuel needs before the crisis, partially cushioning the cost shock, higher costs will still feed through as hedges roll off. Europe has gained some traffic growth by providing direct Europe-Asia connections, capturing some traffic that previously transited via Gulf hubs. However, parts of Europe remain affected by Russian airspace restrictions. More importantly, macroeconomic weakness, against a backdrop of slowing economic growth and rising energy costs, is expected to dampen household purchasing power. European airlines also face cost pressures from heavy regulation, including SAF mandates, and persistently high airport and air navigation charges. Ongoing labor actions in several markets exacerbate operational disruptions and limit airline flexibility. These factors suggest that even as market conditions normalize, the competitive position of the European airline industry may weaken further.

Latin American Airlines

Latin America's performance is weighed down by pressure on several regional currencies due to the energy crisis. Demand conditions in the region remain more sensitive than elsewhere, reflecting lower income levels and a smaller share of business travel in total air transport demand. The cargo market may weaken, especially in export-oriented markets. However, structural demand drivers remain, suggesting adjustment is more likely to be gradual rather than abrupt. Latin American airlines typically have limited balance sheet flexibility and higher financing costs, constraining their ability to absorb shocks and invest in fleet and network expansion. The ratio of EBIT margin to net profit margin in the region is about four times the global average, further highlighting this constraint and limiting airlines' ability to respond dynamically to changes in demand or cost conditions. Consequently, even if overall demand remains positive, a more pronounced slowdown in growth is possible in the region.

Middle Eastern Airlines

At the epicenter of the Middle East conflict, the region is forecast to post a net loss in 2026. Capacity cuts, flight cancellations, operational disruptions, and high fuel prices are all driving up operating expenses. Concurrently, the loss of connecting traffic is depressing load factors and increasing unit costs. The region retains several structural features supporting resilience, including a more favorable tax environment, relatively stable fuel supply security, and lower financial leverage. Furthermore, its geographic location, mature infrastructure, and dense route network support long-term development. The region's cargo market is also under pressure. Operational disruptions have reduced effective capacity and led to a redistribution of connecting cargo flows to other regions, dragging on financial performance. The short-term recovery path may rely more on price increases than a rapid rebound in volumes. In the long term, structural advantages should aid traffic recovery, but margins may be lower, potentially reshaping the economics of hub-based operations.

African Airlines

As flights are rerouted to avoid Middle Eastern airspace, African hub carriers are seeing the strongest traffic growth. However, profitability in the region is expected to weaken due to cost-side vulnerabilities, particularly pressures on fuel supply and pricing. Coupled with typically lower aircraft utilization and weaker balance sheets among African carriers, these factors will limit the revenue upside from diverted traffic flows, leading to a lower expected net profit margin in 2026. Any benefits are likely concentrated among a few hub operators with established connections linking Africa to Europe and Asia. Smaller, more fragmented airlines are expected to be hit hardest in a challenging operating environment. Structural constraints persist. Weak infrastructure, fragmented airspace, and limited cross-border coordination reduce network efficiency and increase operating costs. Furthermore, limited financial capacity and funding sources constrain fleet expansion and network development.

Passenger Perspective

Air travel continues to offer consumers exceptional value. Despite inevitable increases in ticket prices due to higher fuel costs, the average real round-trip ticket price in US dollars, including ancillary services, is forecast at $462, 26.3% lower than in 2016. An IATA public opinion survey conducted in April 2026 among 6,500 travelers from 15 countries who had traveled at least once in the past year found that 97% were satisfied with their most recent travel experience. Additionally, 88% agreed that air travel makes their lives better, 79% agreed it represents good value for money, 81% said they have a good choice of air travel products when purchasing, and 88% expressed concern about their ability to continue flying in the future.

Travelers expect a safe, sustainable, efficient, and profitable airline industry. The IATA survey shows passengers recognize the industry's important role: 89% believe air connectivity is critical to the economy; 88% said air travel has a positive social impact; and 83% stated the global air transport network makes an important contribution to the UN Sustainable Development Goals (SDGs); 90% want future generations to be able to travel by air and experience more of the world.

The air transport industry remains firmly committed to achieving net-zero carbon emissions by 2050. Travelers show high confidence in this commitment: 80% agree the industry is demonstrating a collective commitment to this ambitious goal, 76% agree industry leaders are taking the climate challenge seriously, and 78% express belief that sustainable flying is achievable in the future.

The survey also indicates passenger confidence remains relatively high even against a backdrop of increasing conflicts, including war. Overall, 41% of travelers expect to travel more in the next 12 months than in the past 12 months, with another 52% expecting to travel the same amount. Approximately 91% believe flying is safe, with 85% believing it is safer today than ever before.

Travelers want to be well-informed: 86% said they check government travel advice when booking, 84% conduct more research before traveling, 81% expressed concern about travel disruptions from geopolitical conflicts, and 71% said they book closer to their travel date to avoid surprises. Nonetheless, 68% reported their travel habits have not changed at all.