The war in the Middle East and the rising cost of fuel has hit the profitability of the global aviation sector as it bears the brunt of the fuel price shock.

The International Air Transport Association (IATA) has released its latest financial outlook for the global airline industry showing a halving of profitability as a result of war-related Middle East disruptions and high fuel prices. The regional landscape, however, is highly differentiated. At the geographic centre of the Middle East war, airlines in the Middle East are expected to collectively fall into the red with weak demand and operational disruptions. All other regions are expected to deliver profits, but at reduced levels from previous projections.

“War-related disruptions in the Middle East and rising fuel costs have shifted the outlook for airlines to the worse,” explained IATA director general Willie Walsh. “Globally, airlines are expected to see profitability halve compared to 2025. Profits will shrink from $45 billion in 2025 to $23 billion this year. And margins will shrink from 4.2% to 2.0%. All airline bottom lines are suffering from the rapid 70% rise in jet fuel prices.

“Some of the additional cost is being recuperated by adjusting prices and improving efficiency, but it will not be sufficient to maintain profitability at the previous year’s level. Smaller carriers that started the year with weak balance sheets are certainly struggling. At the regional level, all are in the black but with sharply reduced financial performance, with the exception of the Middle East. 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.”

He added even in the best of times, the airline industry as a whole suffers from low margins and returns below the cost of capital. The oil price shock has tested airline financial resilience as net margins have been squeezed to 2.0% globally.

“Airlines are bearing the brunt of the fuel price shock. While air fares are rising, airlines are still absorbing part of the hike in their bottom lines,” Walsh continued. “Net profit per passenger is expected to fall to $4.50, half of what it was last year. Under the circumstances, that shows resilience. But it won’t even buy you a hot dog at most of the FIFA World Cup venues and it does not leave much of buffer should other costs or taxes start rising.”

The report’s highlights include:

• Airlines are expected to achieve a combined total net profit of $23.0 billion in 2026, which is roughly half the previously projected $41 billion. It is also roughly half the $45 billion net profit estimate for 2025.
• The net profit margin is expected to be 2.0% in 2026, roughly half the previously projected 3.9%. It is also less than half the 4.2% estimate for the 2025 net profit margin.
• Net profit per passenger transported is expected to be $4.50, half the $9.10 achieved in 2025.
• Operating profit in 2026 is expected to be $48.0 billion (down from $76.4 billion in 2025) for a net operating margin of 4.1% (down from 7.2% in 2025).
• Return on invested capital (ROIC) is expected to be 4.3% (down from 6.6% in 2025). This is below the 8.5% estimated weighted average cost of capital. The gap highlights again the structural weakness of the airline industry where profitability shocks quickly erode capital efficiency.
• Total industry revenues are expected to reach $1.165 trillion in 2026 (up 9.4% on the $1.065 trillion in 2025).
• The passenger load factor is forecast to continue to set record highs with airlines expected to fill 84.0% of all seats over the year. That is an improvement on 83.5% in 2025.
• Passenger numbers are expected to reach 5.1 billion in 2026 (up 2.4% on 2025).
• Cargo volumes are expected to reach 71.7 million tonnes in 2026 (up 0.2% on 2025).

Overall revenues are expected to grow by 9.4% to $1.165 trillion. Revenue per available tonne kilometre (ATK) is expected to grow by 8.8%. Outside of the extraordinary period of the COVID recovery, an increase of this magnitude only occurred recently in 2008, when the jet fuel price rose by 40% year-on-year, and in 2010, following the 2009 global financial crisis and subsequent jump in the price of jet fuel.

“Despite significant improvements, revenue growth is expected to lag operating expense growth of 13% to $1.117 trillion, halving industry-wide net profitability to $23.0 billion in 2026,” the report explained. “Major macro-economic factors impacting airlines are expected to deteriorate in 2026 with GDP growth reducing to 2.5% (from 3.4% in 2025), inflation rising to 5.0% (from 4.1% in 2025), and world trade growth falling to 1.9% (from 4.6% in 2025).”

Fuel costs are expected to rise by nearly 40% from $252 billion in 2025 to $350 billion in 2026. This is based on an expected average price of crude oil at $95/barrel (Brent) for the year (up 37% from $69 in 2025). Jet fuel prices are expected to average $152/barrel for the year (up almost 70% on $90 in 2025). The crack spread (premium for jet fuel over Brent crude oil) is expected to average $57/barrel, an historic high.

Globally, airlines have hedged roughly one third of their expected fuel consumption for 2026, which helps smooth short-term cost volatility but does not eliminate exposure to sustained price increases.

Furthermore, many airlines hedge against movement in crude oil prices, as this market is more liquid, which leaves them exposed to increases in the crack spread.

Total fuel consumption in 2026 is expected to remain unchanged from 2025, at 104 billion gallons. The rise in the price of jet fuel is therefore solely responsible for lifting the share of jet fuel in total operating expenses to 31.4% in 2026, up from 25.4% in 2025.

Airlines also bear the cost of compliance with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), estimated to be between $1.2-1.6 billion, to offset CO2 emissions in the 28.8 Mt-81.5 Mt range.

The additional cost of airline purchases of Sustainable Aviation Fuel (SAF) is expected to reach $4.3 billion in 2026 for an anticipated volume of 2.4 million tonnes of SAF being available (0.8% of total fuel consumption). This is slightly lower than previous estimates as the spread between jet fuel and SAF has dropped due to the appreciation of conventional fuel prices.

The report added supply chain challenges continue.

“Despite a gradual recovery in deliveries, supply conditions remain structurally constrained,” it added. “Aircraft production is increasing but not at a sufficient pace to close the gap created during the pandemic. Deliveries remain below pre-COVID peak levels and are therefore still unable to shrink the accumulated shortfall. At the same time, demand for new aircraft remains strong, with orders continuing to exceed deliveries. As a result, the backlog reached 18,100 in May 2026, up from 17,000 in 2024 – representing over 50% of the active fleet.

“Airlines have so far been able to absorb a significant share of the missing capacity through a combination of operational and commercial adjustments. Airlines have extended the life of existing aircraft, increased daily utilization and operated at higher load factors, allowing them partially to offset the impact of delayed deliveries.

“The shortage not only raises costs but also caps growth. Notably, the lack of new aircraft halted gains in fuel efficiency in 2024 and 2025 for the first time in history, eliminating the airline industry’s regular progress on reducing CO2 emissions. In the current environment, with additional geopolitical disruptions affecting global supply chains, the risk is that this imbalance becomes entrenched.”

“War-related disruptions in the Middle East and rising fuel costs have shifted the outlook for airlines to the worse, globally, airlines are expected to see profitability halve compared to 2025. Profits will shrink from $45 billion in 2025 to $23 billion this year.’’

Willie Walsh, IATA