Jet-fuel shock halves the airline industry s expected profits in 2026

Market Analysis

The global airline industry is enjoying robust demand passenger traffic is set to reach a record 5.1 billion travellers in 2026, up 2.4% year-on-year, and industry revenues are forecast to rise 9.4% to $1.165 trillion (€1.01tn). Yet an abrupt jump in jet-fuel costs tied to disruptions in the Middle East has slashed the sectors expected profits roughly in half, according to the International Air Transport Association (IATA).

In its latest financial outlook, IATA which represents about 370 carriers accounting for roughly 85% of global air traffic now expects the industry to generate a combined net profit of $23 billion (€20bn) in 2026. That is down from a previously projected $41 billion (€36bn) and is about half the $45 billion (€39bn) estimated for 2025. Willie Walsh, IATAs Director General, said war-related disruptions in the Middle East and rising fuel costs have materially worsened the outlook for carriers worldwide.

Operating expenses across the industry are set to rise 13% to $1.12 trillion (€970bn) in 2026. The fuel bill is the main driver: IATA projects fuel costs will jump nearly 40% to $350 billion (€304bn) from $252 billion (€219bn) in 2025. That increase will push fuel to account for almost a third of operating costs a heavy burden even as airlines work to absorb some of the shock and pursue efficiency gains. Net profit margins are expected to shrink sharply, from 4.2% in 2025 to around 2.0% in 2026.

Walsh highlighted how price pressure is biting through to the bottom line: net profit per passenger is forecast to fall to roughly $4.50 about half last years level a reminder of how thin margins are across the sector. He warned that should other costs or taxes rise, airlines will have very little buffer to cope.

Key pressures and regional effects

Beyond fuel, airlines face higher costs from aircraft leasing and maintenance, investment in cleaner fuels, carbon-offsetting schemes, and the lingering effects of inflation and weaker global trade. IATA also points to a slowdown in economic growth as another headwind for demand and returns.

The impact is uneven by region. Gulf carriers closest to the centre of the conflict and heavily exposed to disrupted routes and weaker demand are among those forecast to move into loss-making territory. Other regions are expected to stay profitable on aggregate, but at markedly reduced levels compared with 2025.

European carriers face particular strain because of the regions reliance on jet-fuel imports routed through the Gulf. IATA notes that a pre-crisis hedging programme covering approximately 70% of fuel needs has mitigated some near-term pain, but higher costs will surface as those hedges expire. Europe has also seen some passenger flows rerouted to direct EuropeAsia services that bypass Gulf hubs, a partial offset to disruption there. Still, airspace restrictions over Russia, rising energy costs, mounting regulatory and environmental fees, airport charges, air-traffic control costs and recurrent industrial action are weighing on European carriers competitiveness even after market conditions stabilise.

While strong passenger demand and revenue growth provide support, the jet-fuel shock underscores how exposed airlines remain to commodity and geopolitical risk. With margins already slim, the sectors ability to absorb further shocks will depend on how long elevated fuel prices persist, whether hedges and ticket-price increases hold, and how quickly other cost pressures can be managed.