IATA Trims 2026 Airline Profit Forecast on Rising Costs

The global airline industry is expected to remain profitable in 2026 despite rising fuel costs and disruptions caused by the conflict in the Middle East. However, the International Air Transport Association (IATA) has cut its profit forecast by nearly half as operating expenses are rising faster than revenues.

IATA now projects net profits of US$23 billion for the airline sector in 2026, down from a previous forecast of US$45 billion issued before the conflict began. The revised outlook is based on total industry revenues of US$1.17 trillion and a net profit margin of 2.0%, compared with the 4.2% margin expected earlier this year.

The downgrade reflects the impact of higher operating costs across the aviation industry, particularly fuel expenses, which have surged following disruptions in global energy markets linked to the conflict between Iran and the United States and the temporary closure of the Strait of Hormuz.

“The industry’s revenues are expected to grow around 9.5% in 2026, supported by higher yields in both passenger and cargo markets. However, expenses are expected to increase 13.1%, more than offsetting revenue gains,” IATA said in an analysis published on its website.

The Strait of Hormuz remains a critical route for global energy transportation, carrying approximately 20% of the world’s oil supply. Disruptions in traffic through the waterway contributed to a surge in fuel prices, increasing operating costs for airlines worldwide.

According to IATA, the industry’s fuel bill is expected to reach US$351 billion this year, raising fuel’s share of total operating expenses to 31.4%. Fuel remains the largest single cost category for airlines, and the increase has become the primary driver behind the downward revision in profitability forecasts.

Despite these pressures, the association expects airlines to maintain positive aggregate earnings, supported by continued passenger demand and strong aircraft utilization rates.

“This positive result, given the circumstances, is supported by projected passenger traffic growth of 2.1%, record load factors of 84%, and some protection against rising jet fuel prices through hedging strategies,” IATA said.

While operating conditions have improved, the economic effects of the conflict continue to weigh on the industry. Earlier this year, IATA warned that hostilities in the Middle East could reduce global GDP growth by approximately 0.5 percentage points in 2026 and contribute to higher inflation, creating additional pressure on consumer spending and travel demand.

Passenger traffic growth remains positive but significantly below previous years. IATA forecasts global air traffic, measured in revenue passenger kilometers (RPK), to increase by 2.1% in 2026. “Overall, the outlook for passenger air transport in 2026 points to a significant slowdown compared with previous years, although growth will remain positive,” the association said.

The growth outlook varies significantly across regions. Latin America is expected to be one of the strongest-performing aviation markets this year, with passenger demand projected to increase by 5%, driven by relatively resilient regional economies and sustained travel demand.

The region ranks behind Africa and Asia-Pacific in expected passenger growth. Africa is forecast to record a 10% increase in demand, while Asia-Pacific is expected to expand 5.1%, accounting for more than half of global passenger traffic growth in 2026.

In contrast, the Middle East is projected to experience the sharpest decline in demand. IATA forecasts passenger traffic in the region will contract by 11.4% this year due to the direct effects of the conflict and widespread airspace disruptions.

North America is expected to post growth of only 0.8%, reflecting slower economic activity and weaker domestic travel demand in the United States. Europe is forecast to grow 2.8%, supported in part by flight rerouting resulting from disruptions across Middle Eastern air corridors.

Recent traffic data highlight the extent of the impact. Global air passenger demand fell 3.4% year over year in April 2026, marking one of the first significant declines since the industry’s post-pandemic recovery.

IATA reported that total passenger demand decreased 3.4% compared with April 2025, while airline capacity declined 2.9%. The global load factor reached 83.1%, down 0.4 percentage points from the previous year.

The downturn was driven primarily by Middle Eastern carriers, where passenger demand fell 46.6% year over year as airlines suspended operations, rerouted flights, and adjusted schedules due to security concerns.

Although traffic has begun to recover, the industry continues to face a more challenging operating environment than anticipated at the start of the year.

Passenger volumes are nevertheless expected to reach a new record. IATA forecasts that the number of air travelers worldwide will exceed 5.1 billion in 2026, reflecting continued demand despite higher ticket prices and economic uncertainty.

However, the increase in passenger volumes is not translating into stronger profitability. IATA estimates that profit per passenger will fall to US$4.50 this year, compared with US$9.10 in 2025.

The decline highlights the growing gap between traffic growth and cost growth. Airlines are carrying more passengers, but rising fuel expenses and broader operating costs are compressing margins across the sector.

Additionally, airlines are facing higher operating costs as aircraft and engine supply chain delays force fleets to operate older, less fuel-efficient aircraft than planned. With an order backlog  exceeding 18,000 aircraft and an average fleet age of 15.2 years, carriers are missing expected efficiency gains while also facing higher leasing and maintenance costs.

According to Willie Walsh at IATA’s 82nd AGM in Rio de Janeiro, supply chain failures cost airlines at least US$11 billion in 2025, with the impact expected to worsen under higher fuel prices. He criticized engine manufacturers for strong profits despite customer dissatisfaction, calling for improved performance and reliability, while noting that expanded agreements with suppliers such as CFM could slightly improve aftermarket competition and parts availability.