Global airlines are bracing for a sharp decline in profitability this year as escalating tensions in the Middle East and surging jet fuel costs erode earnings across the aviation industry, according to a new forecast released by the International Air Transport Association (IATA).
The industry body said worldwide airline profits are expected to tumble to $23 billion in 2026, representing a steep drop from the estimated $45 billion recorded in 2025 and far below previous expectations.
In its latest financial outlook, IATA projected that while most regions will remain profitable, carriers will face significantly weaker returns, with airlines in the Middle East expected to be hit hardest by operational disruptions and weakened demand linked to the ongoing conflict in the region.
Commenting on the revised outlook, IATA Director-General Willie Walsh said the industry’s financial performance had deteriorated considerably due to the combined impact of geopolitical instability and escalating energy costs.
“War-related disruptions in the Middle East and rising fuel costs have shifted the outlook for airlines to the worst. 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 per cent to 2.0 per cent. All airline bottom lines are suffering from the rapid 70 per cent 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.”
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Walsh noted that the Middle East stands out as the only region forecast to record losses, largely because of the severe operational challenges confronting Gulf-based airlines.
“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.
“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 per cent 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. 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 FIFA World Cup venues, and it does not leave much of a buffer should other costs or taxes start rising.”
The association’s forecast indicates that industry-wide net profit margins will narrow to just 2.0 per cent in 2026, compared with 4.2 per cent achieved in 2025 and lower than earlier projections of 3.9 per cent.
IATA also estimated that net profit generated per passenger will decline sharply from $9.10 last year to $4.50 in 2026, underscoring the growing pressure on airline revenues despite rising ticket prices.
The financial strain is expected to extend beyond net earnings. Operating profit across the global airline industry is projected to fall from $76.4 billion in 2025 to $48 billion in 2026, while operating margins are forecast to contract from 7.2 per cent to 4.1 per cent over the same period.
The report further revealed that returns on invested capital will weaken to 4.3 per cent in 2026, down from 6.6 per cent in 2025, remaining well below the industry’s estimated weighted average cost of capital of 8.5 per cent.
According to IATA, the figures highlight the persistent structural weaknesses within the aviation sector, where external shocks such as fuel price spikes, geopolitical conflicts and operational disruptions can rapidly undermine profitability and long-term capital efficiency.
Despite continued passenger demand and efforts by airlines to improve efficiency, the association warned that the industry faces another difficult year as carriers struggle to absorb rising costs while maintaining global connectivity.
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