Airline profits to plunge 50% amid rising fuel costs
What's the story
The International Air Transport Association (IATA) has revised its profit forecast for the global airline industry, predicting a sharp decline in profitability by 2026. The association now expects airlines to generate a combined net profit of $23 billion in 2026, down from an earlier estimate of $41 billion and last year's estimated profit of $45 billion. The revision highlights the industry's vulnerability to geopolitical tensions and fluctuating fuel prices.
Market challenges
Jet fuel prices and Gulf airline disruptions major factors
IATA Director General Willie Walsh attributed the profit forecast revision to two main factors: a massive spike in jet fuel prices and disruptions to airlines in the Gulf region. He said, "There are two major factors: one is the significant increase in jet fuel prices, which has gone way higher than I think anybody would have expected, and then the disruption to the airlines in the Gulf region, so that combination has led us to reduce the forecast."
Industry adjustments
Smaller airlines may not survive high fuel costs
Walsh also predicted that some smaller airlines could go bankrupt or be acquired by larger carriers due to the impact of high fuel costs. US low-cost carrier Spirit Airlines shut down last month, becoming the first airline casualty of the Iran war. To protect their margins, airlines may also cut unprofitable routes and keep fares high in an environment where demand remains robust, but capacity comes down.
Operational challenges
Middle East conflict's impact on global travel
The Middle East conflict, which started with US and Israeli airstrikes on Iran, has forced airlines to reroute flights around closed or restricted airspace. This has added hours to some journeys, increased fuel consumption, and strained already tight capacity. At the same time, fears of supply disruption have pushed oil prices sharply higher, further increasing jet fuel costs for airlines.
Cost impact
Fuel costs to eat into airlines' profits
IATA expects airlines' fuel bill to jump to around $350 billion this year from some $252 billion in 2025, with fuel accounting for nearly a third of operating costs. This is expected to halve profitability per passenger, with airlines now expected to earn about $4.50 per passenger, roughly half last year's level. Despite these challenges, IATA expects industry revenues to rise 9.4% to around $1.16 trillion this year due to steady travel demand and higher fares.