The global airline industry is bracing for a sharp downturn in profitability in 2026, with earnings nearly halved from earlier projections. The International Air Transport Association (IATA) now expects a combined net profit of $23 billion, a steep drop from the prior estimate of about $41 billion and down from $45 billion in 2025. This revision is attributed to the ongoing Middle East conflict, which has pushed up fuel prices, disrupted key flight routes, and strained airline operations worldwide.
Fuel Surge and Airspace Disruption Hit Airlines
According to Reuters, IATA Director General Willie Walsh highlighted two major pressures behind the downgrade: a significant increase in jet fuel prices, far exceeding expectations, and the disruption faced by airlines in the Gulf region. Walsh warned that higher costs could force weaker airlines out of the market, leading to increased consolidation. "I expect some smaller airlines to go bankrupt or be taken over by bigger carriers," he said.
Airlines Face Rising Costs Despite Strong Demand
Despite financial pressures, IATA reports resilient global air travel demand, with fuller flights and higher revenues projected. Industry revenues are expected to exceed $1.1 trillion, driven by strong passenger traffic and additional income from premium services. However, profitability per passenger has sharply declined; IATA estimates airlines will earn about $4.50 per passenger in 2026, roughly half of last year's level. Global carriers are expected to transport around 5.1 billion passengers in 2026, up from about 4.98 billion in 2025, reflecting continued demand growth despite higher fares.
Middle East Conflict Reshapes Aviation Outlook
The downgrade comes amid continued instability in the Middle East following US and Israeli strikes on Iran, which have triggered widespread airspace disruptions and forced airlines to reroute flights. These diversions have increased flight times, fuel consumption, and operational costs, while tightening capacity on major international routes. Gulf carriers such as Emirates, Qatar Airways, and Etihad Airways are expected to face the most pressure, with IATA warning that Middle Eastern airlines could slip into losses due to conflict-related disruption and weaker demand conditions.
Fuel Costs Emerge as Biggest Burden
IATA estimates the global airline fuel bill will rise to around $350 billion in 2026, up from about $252 billion in 2025, making fuel nearly a third of total operating costs. Walsh noted that the surge in jet fuel prices is wiping out gains from higher passenger revenues and forcing airlines to rethink route networks. Airlines are expected to cut unprofitable routes, while fares are likely to remain elevated due to constrained capacity and steady demand. "Air fares are rising, airlines are still absorbing part of the hike in their bottom lines," IATA noted.
Outlook: Growth in Passengers, Pressure on Profits
While the industry continues to recover in terms of passenger numbers, profitability is expected to remain under strain due to geopolitical uncertainty, fuel volatility, and aircraft delivery delays from manufacturers such as Boeing and Airbus. Walsh said the imbalance between rising demand and constrained capacity would continue to support higher fares, even as airline margins shrink. Despite the pressure, IATA described the outlook as one of "resilience," even if profits fall sharply and regional performance diverges significantly across global markets.
