IATA: Middle East war and expensive fuel to halve airline profits
The International Air Transport Association (IATA), in its new financial forecast, expects global airlines to earn roughly half of last year's profit this year, due to war-related disruptions in the Middle East and a sharp rise in fuel prices. While Middle Eastern carriers are forecast to fall into losses, other regions should remain profitable, albeit less so than previously expected.
IATA estimates that the global net profit of airlines in 2026 will reach $23 billion, roughly half of the previously projected $41 billion and last year's estimate of $45 billion. The net profit margin is expected to fall to 2.0 percent from a previously anticipated 3.9 percent and last year's 4.2 percent.
- Net profit 2026
- $23.0bn vs. $45bn in 2025
- Profit margin
- 2.0% vs. 4.2% in 2025
- Profit per passenger
- $4.50 vs. $9.10 in 2025
- Operating profit
- $48.0bn margin 4.1% vs. 7.2% in 2025
- ROIC
- 4.3% vs. 6.6% in 2025
- Passengers
- 5.1bn up 2.4%
According to IATA, return on invested capital (ROIC) will fall to 4.3 percent from last year's 6.6 percent, remaining below the estimated weighted average cost of capital of 8.5 percent. The association sees this as confirmation of a structural weakness in the industry, where any shock quickly disrupts the efficient use of capital.
Total industry revenue is expected to rise to $1.165 trillion in 2026, up 9.4 percent from $1.065 trillion in 2025. However, revenue growth is set to lag behind a 13 percent rise in operating costs to $1.117 trillion, which IATA says is behind the drop in profitability.
The association also expects key macroeconomic indicators to worsen: global GDP growth is projected to slow to 2.5 percent in 2026 from 3.4 percent last year, inflation is expected to rise to 5.0 percent from 4.1 percent, and growth in world trade is set to slow to 1.9 percent from 4.6 percent last year.
IATA Director General Willie Walsh said the worsened outlook is driven by war-related disruptions in the Middle East and a sharp, roughly 70 percent rise in jet fuel prices. He said carriers are trying to cover part of the extra costs through fare adjustments and greater efficiency, but this is not enough to maintain last year's profitability levels, with smaller carriers with weak balance sheets suffering the most.
Walsh added that carriers from Gulf states face operational uncertainty after the near-total closure of regional airspace at the start of the war. He said that while these airlines are managing to maintain connectivity, the financial impact is unavoidable.
According to Walsh, the oil shock is hitting the airlines themselves the hardest. Profit per passenger carried is expected to fall to $4.50, half of last year's figure, and Walsh noted that such an amount wouldn't even cover a hot dog at most World Cup stadiums, leaving carriers no buffer against any further rise in costs or taxes.
On the revenue side, ticket sales revenue is expected to grow by 9.2 percent to $839 billion, which according to IATA outpaces the expected 2.1 percent growth in demand as measured in RPKs — carriers are thus raising ticket prices to partly offset the impact of costlier fuel, the association says. For the first time since 2019, ancillary revenues ($165 billion, +12.6 percent) are expected to overtake cargo revenues, which are projected to reach $162 billion (+7.2 percent).
Cargo volumes are expected to rise just 0.2 percent this year to 71.7 million tonnes, while the passenger load factor is expected to hit a record 84.0 percent, up from 83.5 percent last year.
Fuel costs are forecast to rise by nearly 40 percent, from $252 billion to $350 billion, based on an expected average Brent crude price of $95 per barrel and a jet fuel price of around $152 per barrel. Fuel's share of total operating costs is thus expected to rise to 31.4 percent from last year's 25.4 percent, even though total fuel consumption is set to remain unchanged at 104 billion gallons.
Further risks and costs
- Carriers have hedged roughly one third of their expected 2026 fuel consumption, which dampens short-term cost swings but does not protect against long-term price increases. Many also hedge only the price of crude oil itself, as it is more liquid, leaving them exposed to a rise in the so-called crack spread, which is expected to hit a historic high of $57 per barrel this year.
- Non-fuel costs are expected to rise by 4.0 percent to $767 billion, of which labour costs account for $271 billion. Airlines directly employ 3.33 million people, up 1.0 percent from last year, while productivity per employee slightly declined by 0.4 percent.
- Carriers also expect CORSIA compliance costs of $1.2 to $1.6 billion to offset 28.8 to 81.5 million tonnes of CO2 emissions, plus additional costs of $4.3 billion for purchasing 2.4 million tonnes of sustainable aviation fuel (SAF), equivalent to 0.8 percent of total fuel consumption.
- According to IATA, the weakening US dollar continues to help non-dollar carriers this year — last year the dollar weakened against other currencies by roughly 10 percent, and this year a decline of around 5 percent is expected, having already lost about 2.5 percent by the end of April, which makes dollar-denominated invoices and debt cheaper.
- Aircraft orders continue to outpace deliveries, with manufacturers' order backlogs reaching 18,100 units in May 2026, up from 17,000 in 2024, equivalent to more than half of the active fleet. Airlines are so far offsetting the aircraft shortage by extending the lifespan of their existing fleets, increasing daily aircraft utilisation, and raising seat occupancy.
- According to IATA, the shortage of new aircraft halted improvements in fleet fuel efficiency for the first time ever in 2024 and 2025, which is also slowing progress in curbing CO2 emissions.
IATA also points to macroeconomic risk linked to elections — in 2026, more than 40 national elections affecting over 1.5 billion people are set to take place or have already taken place, with the most closely watched including the US congressional elections in November, Brazil's general election in October, and Israel's parliamentary election in October. According to the association, their outcomes will shape government responses to inflation, trade tensions, and fiscal and monetary policy at a time when the energy crisis is reshaping government priorities worldwide.