Fuel shock cuts airline profit hopes

Global airlines are facing a sharp downgrade in earnings expectations for 2026, with industry profit forecasts almost halved as the Middle East war drives up fuel costs, disrupts Gulf air corridors and weakens demand across one of the world’s most strategically placed aviation regions.

The International Air Transport Association’s latest financial outlook puts combined airline net profit at about $23 billion this year, down from an earlier projection of about $41 billion and below the $45 billion earned in 2025. The revision marks a significant reversal for a sector that had entered the year expecting steadier margins, fuller aircraft and continued demand growth after the post-pandemic recovery matured into a more stable travel cycle.

The pressure is most acute in the Middle East, where carriers are expected to fall collectively into loss as conflict-related airspace restrictions, route diversions, higher fuel burn and softer passenger flows hit operations. Gulf airlines, including Emirates, Qatar Airways and Etihad Airways, sit at the centre of long-haul connecting traffic between Asia, Europe, Africa and the Americas, leaving them more exposed than most rivals when regional skies are closed, restricted or commercially risky.

Fuel has become the defining strain on the industry’s finances. Airlines are now expected to face a fuel bill of about $350 billion in 2026, compared with roughly $252 billion in 2025. That would take fuel close to a third of operating costs, eroding the benefit of higher fares and stronger ancillary revenue. Profit per passenger is projected at around $4.50, roughly half the level achieved last year, underscoring how thin airline margins remain even when demand is resilient.

IATA Director General Willie Walsh has linked the downgrade to two major factors: the surge in jet fuel prices and disruption to Gulf-based airline operations. His warning that fares are likely to remain elevated reflects a basic supply-demand squeeze. Airlines are cutting or trimming routes that no longer cover costs, while passengers on key international corridors still show willingness to travel. Lower capacity, higher operating costs and stable demand leave little room for fare relief.

The regional divide is stark. North America, Europe, Asia-Pacific, Latin America and Africa are still expected to remain profitable, though at weaker levels than previously forecast. The Middle East stands apart because the war has struck directly at its operating model. Long-haul hub carriers depend on high aircraft utilisation, reliable overflight rights, predictable connections and tightly managed transfer banks. Route extensions of even one or two hours can add significant fuel and crew costs across a large widebody network.

Passenger demand data already show the strain. Middle East air passenger traffic fell 3.4 per cent in April from a year earlier, while air cargo told a more mixed story. Global cargo demand rose 4 per cent in April, supported by Asia-linked trade flows and dedicated freighter operations, but Middle Eastern carriers recorded an 18.2 per cent decline in cargo demand and a 22.9 per cent fall in capacity. Gulf-linked trade lanes, including Europe-Middle East and Middle East-Asia, contracted sharply as traffic shifted around disrupted hubs.

The wider industry still has points of strength. Total revenue is expected to rise to about $1.16 trillion, helped by higher fares, resilient leisure and business travel, and growing income from seat selection, upgrades, baggage fees, loyalty programmes and onboard services. Aircraft are also flying with high load factors, allowing airlines to spread fixed costs across fuller cabins. Yet those gains are being overwhelmed by fuel volatility, longer routings and fleet constraints.

Supply problems at Boeing and Airbus are compounding the squeeze. Airlines waiting for new, more fuel-efficient aircraft are keeping older jets in service longer, raising maintenance expenses and worsening exposure to fuel costs. Lease rates and ownership costs remain elevated, while spare parts shortages continue to affect reliability and turnaround planning. The problem is especially damaging for carriers seeking to rebuild schedules after months of disruption.

Financial stress is likely to accelerate consolidation and route rationalisation. Smaller carriers with weaker balance sheets, limited hedging protection or narrow route networks face the greatest risk. Larger airline groups are better placed to absorb fuel shocks, redeploy capacity and preserve liquidity, but even they are being forced to reassess growth plans, aircraft delivery schedules and network priorities.