Jet Fuel Price Shock Expected to Halve Global Airline Industry Profits in 2026 Despite Record Demand

A sharp rise in jet fuel prices driven by war-related disruptions involving Iran is projected to significantly erode the global airline industry’s profitability in 2026, even as passenger demand and revenues continue to climb to record levels, according to the latest industry outlook from the International Air Transport Association (IATA), which represents 370 airlines responsible for about 85% of global air traffic.

The industry body forecasts that airlines worldwide will collectively post a net profit of around $23bn (€20bn) in 2026. This marks a substantial downgrade from an earlier projection of $41bn (€36bn), and is also roughly half of the estimated $45bn (€39bn) profit expected in 2025.

Despite this deterioration in profitability forecasts, the sector is still expected to carry a record 5.1 billion passengers, reflecting a 2.4% year-on-year increase. Total industry revenues are projected to reach $1.165tn (€1.01tn), up 9.4% compared with the previous year.

According to IATA Director General Willie Walsh, the industry outlook has worsened due to geopolitical and fuel market pressures. He stated: "War-related disruptions in the Middle East and rising fuel costs have worsened the outlook for airlines,"

At the same time, operating costs across the sector are expected to rise sharply, increasing by about 13% to $1.12tn (€970bn). A major driver of this increase is fuel expenditure, which is forecast to jump by nearly 40%, reaching $350bn (€304bn) in 2026 compared with $252bn (€219bn) in 2025. As a result, jet fuel is projected to account for close to one-third of total airline operating costs.

Even though airlines are partially passing higher fuel prices on to customers through higher fares, they are also absorbing a significant portion of the cost increases. Walsh explained: "While air fares are rising, airlines are still absorbing part of the hike in their bottom lines,"

Profitability is therefore expected to weaken further, with net profit margins falling from 4.2% in 2025 to just 2.0%. On a per-passenger basis, earnings are forecast to decline to $4.50, a level Walsh emphasized is extremely low. He noted that "net profit per passenger is expected to fall to $4.50, half of what it was last year", which "won't even buy you a hot dog at most FIFA World Cup venues," and warned that if additional costs or taxation increase, airlines would have very limited financial flexibility.

Beyond fuel costs, airlines are also facing rising expenses linked to aircraft leasing and maintenance, as well as investments in cleaner fuel technologies and carbon offsetting programs. Broader macroeconomic conditions, including slowing global growth, rising inflation, and weaker international trade, are also contributing to the negative pressure on the sector.

Regionally, the financial impact is uneven. Gulf-based carriers are expected to be among the hardest hit, with IATA forecasting that they could fall into losses due to disrupted operations and weakening demand caused by the regional conflict environment. Despite this, all other global regions are still expected to remain profitable, although at reduced levels compared with previous years.

Europe is also projected to face considerable cost pressure due to its dependence on Gulf-sourced jet fuel imports. While some of this exposure is softened by pre-crisis hedging strategies—covering around 70% of fuel requirements—these protections will gradually diminish as hedges expire, allowing higher prices to filter through.

European airlines have seen some compensating effects, including increased demand for direct flight routes between Europe and Asia that bypass Gulf hubs. However, ongoing restrictions on Russian airspace continue to disrupt flight planning and operations. Combined with weaker economic growth and rising energy costs, consumer demand is expected to face additional strain.

Furthermore, airlines in Europe are also contending with growing burdens from environmental regulations, higher airport charges, and increased air traffic control fees.

Industrial action in several countries adds another layer of operational difficulty. Collectively, these pressures may leave European carriers at a competitive disadvantage even once broader market conditions eventually stabilise.

By fLEXI tEAM