The global airline industry is expected to see its profits nearly halved in 2026 as escalating jet fuel costs, driven by ongoing conflict in the Middle East, offset strong revenue growth and record passenger demand, according to the latest financial outlook released by the International Air Transport Association (IATA).
The industry body, which represents approximately 370 airlines accounting for 85 percent of global air traffic, now forecasts combined net profits of $23 billion in 2026, significantly lower than its previous projection of $41 billion and down sharply from the estimated $45 billion earned in 2025.
The revised outlook comes despite continued growth in air travel demand. Airlines are expected to carry a record 5.1 billion passengers this year, representing a 2.4 percent increase from 2025. Industry revenues are also projected to reach $1.165 trillion, up 9.4 percent year-over-year.
However, rapidly rising fuel expenses are eroding profitability across the sector.
"War-related disruptions in the Middle East and rising fuel costs have worsened the outlook for airlines," said Willie Walsh, Director General of IATA.
According to the association, the industry's fuel bill is expected to surge nearly 40 percent to $350 billion in 2026, compared with $252 billion in 2025. Fuel will account for almost one-third of total airline operating expenses, making it the largest cost burden for many carriers.
As a result, total operating costs are projected to climb 13 percent to $1.12 trillion this year.
While airlines have increased fares and implemented efficiency measures to offset rising expenses, the impact has not been sufficient to preserve margins. IATA forecasts that net profit margins will decline from 4.2 percent in 2025 to just 2.0 percent in 2026.
Walsh noted that net profit per passenger is expected to fall to approximately $4.50, highlighting the industry's limited financial cushion amid mounting economic pressures.
"While air fares are rising, airlines are still absorbing part of the increase in their bottom lines," Walsh said, warning that additional taxes or cost increases could place further strain on the sector.
Beyond fuel costs, airlines are also facing higher aircraft leasing fees, maintenance expenses, investments in sustainable aviation fuels, and carbon reduction initiatives. Slowing global economic growth, persistent inflation, and weaker international trade are adding further uncertainty to the industry's outlook.
Gulf Airlines Face Greatest Pressure
The financial impact is expected to vary significantly by region.
Airlines based in the Gulf region are forecast to be among the hardest hit due to their proximity to ongoing geopolitical tensions and operational disruptions. IATA expects several carriers in the region to move into loss-making territory during 2026 as demand softens and operating costs increase.
European airlines are also expected to face considerable challenges. The region remains heavily dependent on Gulf fuel imports, exposing carriers to rising energy costs.
Although many airlines protected themselves through fuel hedging strategies covering approximately 70 percent of their fuel needs before the latest price surge, analysts warn that the benefits will gradually diminish as existing contracts expire.
European carriers continue to grapple with additional challenges, including restricted access to Russian airspace, rising airport and air traffic control charges, environmental compliance costs, and recurring labor disputes across several markets.
While some airlines have benefited from increased demand for direct Europe-Asia routes that bypass traditional Gulf transit hubs, industry experts believe profitability will remain under pressure throughout the year.
Industry Growth Continues Despite Challenges
Despite the weaker profit outlook, the airline industry remains on a growth trajectory as passenger demand continues to recover and expand worldwide.
Industry leaders remain cautiously optimistic that strong travel demand and continued operational improvements will help airlines navigate current challenges. However, the sharp rise in fuel costs underscores the sector's vulnerability to geopolitical events and energy market volatility.
With profit margins expected to remain historically thin, airlines are likely to continue focusing on efficiency, fleet modernization, and cost management strategies as they seek to maintain financial stability in an increasingly uncertain global environment.
