The International Air Transport Association has warned that the global aviation industry is heading into a difficult financial year, projecting a sharp decline in airline profitability in 2026 as escalating conflict in the Middle East and soaring jet fuel prices continue to disrupt operations across the world.
In its latest industry outlook released on Sunday, the association forecast that airlines worldwide would record a combined net profit of $23bn in 2026, representing a dramatic fall from the estimated $45bn posted in 2025.
The projection also falls far below the earlier industry estimate of $41bn for the year, underscoring the worsening challenges confronting carriers amid geopolitical instability and rising operational expenses.
According to the report, the downturn is expected to affect airlines across all regions, with shrinking profit margins becoming a major concern for operators already grappling with economic uncertainty and fluctuating passenger demand.
The association stated that while most regions would likely remain profitable, earnings would decline significantly compared to previous years. However, the Middle East is expected to emerge as the only region recording outright losses due to the impact of the ongoing conflict and repeated disruptions to air travel operations.
Speaking on the outlook, IATA Director-General, Willie Walsh, said the deteriorating security situation in the Middle East and the steep increase in fuel prices had fundamentally altered the aviation industry’s financial outlook.
According to him, airline profits are now expected to shrink by nearly half compared to the previous year.
“War-related disruptions in the Middle East and rising fuel costs have shifted the outlook for airlines to the worst,” Walsh stated.
“Globally, airlines are expected to see profitability halve compared to 2025. Profits will shrink from $45 billion in 2025 to $23 billion this year.”
He further explained that the industry’s overall profit margin would also decline sharply, dropping from 4.2 per cent in 2025 to just 2.0 per cent in 2026.
Industry analysts say the reduction reflects mounting pressure on airline operating costs, particularly aviation fuel, which remains one of the largest expenses for carriers worldwide.
Walsh disclosed that jet fuel prices had surged by nearly 70 per cent within a short period, significantly increasing operating expenses for airlines across international and domestic routes.
“And margins will shrink from 4.2 per cent to 2.0 per cent,” he said.
“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.”
The IATA boss noted that although many airlines had attempted to cushion the impact through fare adjustments, route optimisation and operational efficiency measures, those interventions were proving inadequate in the face of the rapidly rising cost environment.
He added that smaller airlines with fragile financial positions were among the worst hit, warning that several carriers that entered the year with weak balance sheets were now facing severe financial strain.
“Smaller carriers that started the year with weak balance sheets are certainly struggling,” Walsh added.
The report also highlighted the growing operational challenges facing airlines in the Gulf region, where airspace disruptions linked to the Middle East conflict have severely affected scheduling, flight routing and passenger traffic.
According to IATA, Gulf carriers were particularly vulnerable because of their strategic role as major international transit operators connecting Europe, Asia, Africa and North America.
The association explained that the near-total shutdown of airspace in parts of the region at the outbreak of the conflict triggered widespread operational uncertainty for airlines operating through key Middle Eastern hubs.
Walsh acknowledged the efforts of regional airlines in maintaining connectivity despite the difficult circumstances but admitted that the financial consequences would be unavoidable.
“At the regional level, all are in the black but with sharply reduced financial performance, with the exception of the Middle East,” he said.
“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.”
Experts in the aviation industry say the development could have broader implications for global travel, ticket pricing and tourism markets in the coming months.
Many airlines are already reviewing route networks, reducing frequencies on less profitable routes and implementing cost-cutting measures to manage the worsening economic environment.
Industry observers also warn that sustained high fuel prices may eventually translate into higher airfares for passengers, especially on long-haul international routes heavily dependent on fuel-intensive operations.
The latest forecast marks a sharp reversal from the strong recovery momentum experienced by the global aviation sector after the COVID-19 pandemic, when rising travel demand and reopening economies helped airlines gradually return to profitability.
However, analysts say the combination of geopolitical tensions, inflationary pressures and volatile energy prices is now threatening to slow that recovery and place renewed pressure on airline finances globally.
Despite the bleak outlook, IATA expressed confidence that the aviation industry would continue adapting to the evolving challenges through efficiency improvements, technological innovation and strategic restructuring aimed at sustaining operations in an increasingly uncertain global environment.
