The airline industry body has sharply downgraded its financial forecast, projecting combined global airline net profits of just US$23bn (billion) in 2026, compared with an earlier estimate of US$41bn and about US$45bn earned in 2025. The industry's net profit margin is expected to fall to 2% from 4.2% last year.
At the heart of the deterioration is an unprecedented surge in fuel costs which remain the single largest expense item for most airlines.
For airlines around the world, the message from IATA's latest forecast is clear: passenger demand remains strong, but surging fuel costs are eroding profitability at a pace the industry can no longer ignore.
Fuel Costs Emerge as Biggest Threat
According to IATA, the industry's fuel bill is expected to soar to around US$350bn in 2026 as jet fuel prices average about US$152 per barrel, nearly 70% higher than last year's levels.
The increase follows disruptions to energy markets and aviation routes linked to the conflict in the Middle East, which has forced airlines to reroute flights, lengthen journey times and consume more fuel while simultaneously paying higher prices for it.
IATA director general Willie Walsh said the rapid increase in fuel prices has placed severe pressure on airline balance sheets worldwide.
"All airline bottom lines are suffering from the rapid 70% rise in jet fuel prices," Mr Walsh said, noting that while carriers are attempting to offset some of the additional costs through fare increases and operational efficiencies, those measures are insufficient to maintain previous profitability levels.
Airlines Absorbing Part of the Pain
Despite the surge in costs, airlines have not been able to fully pass on the burden to passengers.
IATA estimates that net profit per passenger will fall to about US$4.50 in 2026, roughly half the US$9.10 earned per traveller in 2025.
The figures highlight how thin airline margins remain even during periods of strong travel demand.
Industry executives say many airlines are being forced to absorb a significant portion of the fuel-cost increase in order to remain competitive, particularly in price-sensitive markets.
However, analysts and airline executives increasingly believe higher ticket prices will be unavoidable if fuel costs remain elevated.
Middle East Carriers Face Biggest Impact
The financial impact is expected to vary significantly across regions.
Airlines operating in the Middle East, where the conflict has directly affected airspace and travel demand, are expected to suffer the most severe consequences. IATA said carriers in the region could collectively slip into losses due to operational disruptions, flight rerouting and weaker demand.
"The Gulf carriers face operational uncertainty following a near-complete shutdown of airspace at the outbreak of the war. These carriers are doing an amazing job maintaining connectivity, but major financial impacts are unavoidable," Mr Walsh said.
Elsewhere, airlines are still expected to remain profitable, though at significantly reduced levels compared with earlier projections.
Growth Continues, but Profitability Weakens
The downgrade comes despite continued growth in passenger demand.
IATA expects industry revenues to reach a record US$1.16trn (trillion) in 2026, an increase of about 9.4% from 2025. Passenger traffic is still forecast to rise, while airlines are expected to fill around 84% of available seats, another record level.
However, rising revenues are being overwhelmed by escalating operating costs.
The industry body warned that airlines now face the weakest profitability environment since the post-pandemic recovery, with limited scope for further efficiency gains to offset higher fuel costs.
Capacity Cuts and Higher Fares Loom
The fuel shock is already influencing strategic decisions across the aviation sector.
Several airline executives have warned that if fuel prices remain elevated, carriers may be forced to reduce capacity, delay expansion plans and focus on protecting margins rather than pursuing aggressive growth.
Some airlines have already begun cutting less-profitable routes, while others are relying on fuel-hedging programmes and cost-cutting measures to soften the impact.
Industry experts say the combination of higher fuel prices, airspace restrictions and continuing aircraft-delivery delays is creating one of the most challenging operating environments airlines have faced in recent years. Older aircraft fleets, retained because of supply-chain constraints at manufacturers, are also consuming more fuel and adding to costs.
Outlook Remains Uncertain
IATA said airlines remain vulnerable to any further escalation in fuel prices or prolonged geopolitical disruptions.
While demand for air travel has proven resilient, the industry's financial cushion has become considerably thinner. With profit margins reduced to just 2%, even modest increases in costs or fresh disruptions could have a disproportionate impact on airline earnings.
