IATA Revises Global Industry Forecast Amid Rising Costs, Operational Disruptions and Geopolitical Uncertainty
Rio de Janeiro, Brazil: The global airline industry is expected to remain profitable in 2026, but escalating geopolitical tensions in the Middle East and a dramatic surge in jet fuel prices are projected to significantly weaken financial performance across the sector, according to the latest outlook released by the International Air Transport Association (IATA).
Presenting its updated industry forecast at the 82nd IATA Annual General Meeting in Rio de Janeiro, the association warned that airline profitability is likely to fall by nearly half compared with 2025, as carriers grapple with rising operating costs, airspace disruptions and mounting economic uncertainty.
IATA now expects global airlines to generate a combined net profit of USD 23 billion in 2026, sharply lower than the USD 45 billion anticipated for 2025 and substantially below earlier forecasts. Industry net profit margins are projected to decline from 4.2 per cent in 2025 to just 2.0 per cent in 2026, underscoring the growing pressure on airline balance sheets.
Operating profits are forecast to fall from USD 76.4 billion to USD 48 billion, while returns on invested capital are expected to decline to 4.3 per cent, remaining significantly below the industry’s estimated weighted average cost of capital of 8.5 per cent.
Middle East Conflict Alters Industry Outlook
According to IATA, the worsening geopolitical situation in the Middle East has emerged as one of the most significant factors affecting airline performance this year. Airspace closures, flight diversions, operational uncertainty and disruptions to key international transit hubs have created challenges for carriers worldwide, particularly those based in the Gulf region.
Willie Walsh, Director General of IATA, said the combination of conflict-related disruptions and soaring fuel prices has fundamentally altered the industry’s financial outlook.
He noted that airline profits are expected to decline from USD 45 billion in 2025 to USD 23 billion in 2026, while margins are projected to shrink by more than half. Walsh emphasized that the rapid increase in jet fuel prices has affected airlines globally, forcing carriers to absorb a significant portion of rising costs despite fare adjustments and ongoing efficiency improvements.
He added that while all regions are expected to remain profitable overall, financial performance has deteriorated sharply, with the Middle East expected to be the only region reporting a net loss due to the direct operational impact of the conflict.
Fuel Costs Become Industry’s Biggest Challenge
The sharp rise in fuel prices has become the defining challenge for airlines in 2026.
IATA estimates that industry-wide fuel expenditure will increase from USD 252 billion in 2025 to approximately USD 350 billion this year, representing one of the largest year-on-year cost increases in recent memory.
The forecast is based on an expected average Brent crude oil price of USD 95 per barrel, compared with USD 69 in 2025. Even more significantly, jet fuel prices are expected to average USD 152 per barrel, nearly 70 per cent higher than last year’s average of USD 90.
As a result, fuel will account for 31.4 per cent of airline operating costs, up from 25.4 per cent a year earlier.
Although many airlines have hedged a portion of their fuel requirements, approximately two-thirds of industry fuel consumption remains exposed to market volatility.
Walsh noted that net profit per passenger is expected to fall to around USD 4.50, half the level achieved in 2025. While airlines have demonstrated resilience through pricing adjustments and operational efficiencies, he cautioned that such thin margins leave little room for additional cost increases or unexpected economic shocks.
Revenue Growth Continues Despite Headwinds
Despite mounting cost pressures, demand for air travel remains remarkably strong.
IATA forecasts total industry revenues will rise by 9.4 per cent to USD 1.165 trillion in 2026, marking another milestone for global aviation.
Passenger traffic is expected to reach 5.1 billion travellers, while global air cargo volumes are projected to increase to 71.7 million tonnes, reflecting continued demand for international trade and logistics services.
Airlines are also expected to achieve a record average passenger load factor of 84 per cent, demonstrating that aircraft continue to operate at historically high occupancy levels despite rising ticket prices and economic uncertainty.
However, revenue growth is being overshadowed by a projected 13 per cent increase in operating expenses, which are expected to climb to USD 1.117 trillion.
Sustainability and Regulatory Costs Add Pressure
In addition to fuel costs, airlines are facing growing sustainability-related expenditures.
IATA estimates that compliance with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) will cost the industry between USD 1.2 billion and USD 1.6 billion in 2026.
At the same time, airlines are expected to spend approximately USD 4.3 billion on Sustainable Aviation Fuel (SAF)purchases as they work toward long-term decarbonisation targets.
Non-fuel operating costs are also expected to rise by around 4 per cent to USD 767 billion, driven by higher labour expenses, increasing maintenance requirements for ageing aircraft fleets and elevated leasing costs resulting from aircraft shortages.
Regional Outlook Reveals Uneven Impact
The financial impact of the current crisis varies considerably across different regions.
Middle East
Airlines in the Middle East are expected to be the only carriers globally to post a net loss in 2026. Ongoing airspace restrictions, reduced capacity, weaker connecting traffic, operational disruptions and elevated costs are expected to weigh heavily on profitability.
While Gulf airlines continue to benefit from world-class infrastructure, strong international networks and strategic geographic positioning, IATA believes meaningful recovery will depend on the restoration of operational stability across the region.
Asia-Pacific
Airlines in Asia-Pacific continue to benefit from strong travel demand and some passenger traffic diverted from disrupted Middle Eastern hubs. However, higher fuel costs, longer flight routings and currency depreciation are increasing operational expenses.
Europe
European carriers face a complex environment characterised by higher fuel prices, mandatory SAF requirements, increased airport and air navigation charges, labour disputes and a slowing economic outlook.
North America
North American airlines remain less exposed to direct operational disruptions in the Middle East but face significant fuel-price exposure due to relatively low levels of fuel hedging. Full-service network carriers are expected to outperform low-cost operators due to stronger premium travel demand.
Latin America and Africa
African airlines are benefiting from some rerouted traffic flows, although infrastructure limitations and high operating costs continue to constrain profitability. Meanwhile, Latin American carriers face pressure from weaker currencies, declining purchasing power in some markets and tighter financial conditions.
Aircraft Shortages Continue to Limit Growth
Beyond geopolitical and fuel-related concerns, aircraft supply chain disruptions remain a major constraint on industry expansion.
IATA reported that global aircraft order backlogs reached approximately 18,100 aircraft in May 2026, representing more than half of the world’s active commercial fleet.
Delayed deliveries have forced airlines to extend the operational life of existing aircraft, increase utilization rates and maintain exceptionally high load factors. The shortage is also slowing improvements in fuel efficiency and delaying progress toward industry sustainability goals.
Consumer Confidence Remains Strong
Despite economic uncertainty and rising airfares, traveller sentiment remains overwhelmingly positive.
According to an IATA passenger survey conducted in April 2026, 97 per cent of passengers expressed satisfaction with their most recent flight experience, while 41 per cent expect to travel more frequently during the next 12 months.
The survey also revealed strong support for aviation’s environmental commitments, with 80 per cent of respondents believing the industry is serious about achieving its net-zero emissions target by 2050.
Industry Faces a Delicate Balancing Act
The latest IATA forecast highlights the resilience of global aviation demand while underscoring the fragility of airline profitability in an increasingly complex operating environment.
Although passenger numbers, revenues and cargo demand continue to grow, the combination of geopolitical instability, fuel market volatility, sustainability costs and supply chain challenges is significantly eroding financial returns.
For airlines, 2026 is shaping up to be a year defined not by growth alone, but by their ability to navigate unprecedented cost pressures while maintaining connectivity, investing in sustainability and meeting the expectations of a steadily expanding global travelling public.
