Rising fuel costs squeeze airline margins – IATA

The International Air Transport Association (IATA) has warned that soaring fuel prices are placing significant pressure on airline profitability, with carriers worldwide expected to face shrinking margins despite continued growth in passenger demand and industry revenues.

According to IATA’s latest financial outlook, global airline profits are projected to decline sharply in 2026 as rising jet fuel costs, geopolitical tensions and operational disruptions increase expenses across the aviation industry. The association forecasts that airlines will generate a combined net profit of $23 billion this year, nearly half the estimated $45 billion recorded in 2025 and well below earlier expectations.

The industry body attributed the weaker outlook primarily to the sharp increase in fuel costs, which remain the largest single operating expense for most airlines. IATA estimates that global airline fuel expenditure will rise by almost 40 per cent, climbing from $252 billion in 2025 to $350 billion in 2026. The increase is being driven by higher crude oil prices and a substantial jump in jet fuel prices amid ongoing geopolitical tensions and supply disruptions.

Jet fuel prices are expected to average about $152 per barrel this year, nearly 70 per cent higher than the previous year. As a result, fuel is projected to account for 31.4 per cent of total airline operating expenses, compared with 25.4 per cent in 2025. Industry analysts say this shift is placing unprecedented pressure on carriers already operating on thin profit margins.

IATA Director General Willie Walsh said the industry is facing a difficult operating environment in which costs are rising much faster than revenues. While airlines continue to benefit from strong travel demand and record passenger traffic, much of the additional income is being absorbed by higher operating expenses. He noted that carriers are being forced to balance profitability concerns with the need to maintain competitive pricing and service quality.

Despite the challenging conditions, demand for air travel remains resilient. IATA expects passenger numbers to reach 5.1 billion in 2026, representing a 2.4 per cent increase over the previous year. Passenger load factors are also forecast to reach a record 84 per cent, indicating that airlines are filling more seats than ever before. Industry revenues are expected to rise by 9.4 per cent to approximately $1.165 trillion.

However, operating expenses are projected to grow even faster, increasing by 13 per cent to $1.117 trillion. This imbalance between revenue growth and cost escalation is expected to significantly reduce profitability across most regions. Analysts note that even strong passenger demand may not be sufficient to offset the impact of rising fuel prices if energy markets remain volatile.

To cope with rising costs, many airlines have begun adjusting fares and increasing ancillary charges. IATA projects that passenger ticket revenues will rise to $839 billion this year, supported by higher ticket yields and fare adjustments designed to recover part of the fuel-related cost increases. Ancillary revenues, including baggage fees, seat selection charges and other services, are also expected to grow strongly as airlines seek additional sources of income.

Industry leaders say fare increases are becoming increasingly difficult to avoid. While some airlines have succeeded in passing part of the fuel burden on to consumers, competition and economic uncertainty continue to limit pricing flexibility in many markets. The challenge is particularly acute for low-cost carriers, which generally operate with thinner margins and have fewer opportunities to generate premium revenue streams.

Another factor complicating the outlook is the shortage of new aircraft. Delivery delays from major manufacturers have forced many airlines to continue operating older aircraft that consume more fuel and require additional maintenance. Aircraft lease rates have also reached record levels due to limited availability, adding further pressure to operating costs. IATA said these supply-chain constraints are restricting capacity growth while simultaneously increasing expenses.

Regional performance is expected to vary significantly. Airlines in the Middle East are forecast to be among the hardest hit due to operational disruptions and weaker demand linked to regional tensions. European, North American and Asia-Pacific carriers are expected to remain profitable but at reduced levels, while African airlines are projected to generate only marginal profits despite strong passenger growth.

The association also warned that broader economic conditions could add to industry challenges. Global economic growth is expected to slow, inflation remains elevated and international trade expansion is forecast to weaken. These factors could affect both business and leisure travel demand, potentially limiting airlines’ ability to pass higher costs on to passengers.

Despite the headwinds, IATA maintains that the industry remains resilient. Strong travel demand, record load factors and continued revenue growth provide a foundation for recovery once fuel markets stabilise. However, the organisation cautioned that sustained increases in energy costs could continue to erode profitability and leave airlines with little financial buffer against future shocks. For carriers around the world, the challenge in 2026 will be maintaining growth while navigating one of the most significant fuel-cost pressures in recent years.