IATA
Slashed Outlook
Mar/May 2026
What a difference a few months can make! IATA’s semi-annual publication — Global Outlook for Aviation- in December 2025 showed optimism that 2026 would add further momentum to the industry’s fortunes and generate another record year for profitability (see Aviation Strategy, Dec 2025). The latest issue now expects operating profits and net income to halve in 2026.
Although by no means as existential a crisis as the COVID-19 pandemic, the trade body propounds that the industry has been hit with a massive setback. The closure of the Strait of Hormuz in February following Trump’s decision to wage war against Iran has, it states, triggered “an oil-and-refinery shock without modern precedent”.
The impact has been to cut crude oil supply by 10 million barrels a day (10% of global production), and has had an exacerbated affect on supply when refined products and LNG are included. Hormuz-linked flows represent 20% of global seaborne fuel trade, and competition for the limited supply has intensified — particularly in Europe. Crack spreads hit a record $80/bbl in April and the jet fuel price has doubled since the beginning of the year.
Some regions have been hit harder: in Singapore the spot price of jet kerosene reached an all-time high of over $230/bbl.
For the year as a whole, IATA forecasts that the industry’s total fuel bill will jump by 38% (or $100bn) to $350bn, at which level it would account for over 30% of total operating costs.
Once again IATA bemoans the lack of supply of sustainable aviation fuels (SAF). It expects that output of SAF will only reach 2.4m tonnes in 2026 (roughly 0.8% of current jet fuel demand) while 500m tonnes will be required in 2050 to achieve the industry’s net zero target. It makes a valid point that this sudden disruption to fossil-fuel supply shows an urgent need to develop alternative fuels for energy security, if not for the climate.
The macro-economic environment is deteriorating as the fuel price spike feeds through to inflation — the group in its forecasts is working on the basis of GDP growth of 2.5% (down 50bp) with further risks on the downside, and global inflation rising above 5%.
This, along with higher fuel costs (which will get passed on to passengers in the form of higher fares), airspace disruptions and longer routings will have a dampening effect on demand. The group is now forecasting passenger traffic (in RPK) to grow by only 2% in 2026, a material slowdown from the 5% expected in the previous forecast. For the Middle East carriers it is suggesting a full year 11% decline in passenger demand (with some diversion to Africa and Asia because of re-routings).
Air cargo, previously expected to grow by nearly 3%, is also materially impacted, not least by the disruption to the hub connectivity in the Gulf; and IATA has reduced its expectations to an increase of 0.7% for 2026. IATA notes that passenger aircraft bellyhold capacity shortages (exacerbated by longer flight routings) are contributing to rising freight yields — forecast to rise by 6.5% this year having been declining since 2022.
As a result all airlines are expected to encounter severe margin pressure. The worst affected are deemed, not unsurprisingly, to be those in the Middle East. They have enjoyed some of the best margins in the industry in the last few years since recovering from the COVID pandemic, benefiting from the general shortage of capacity, yield improvements and reduced competition as Etihad became a rational competitor. IATA is forecasting a net loss for the region of $(4.9)bn, a near $13bn reversal from its previous forecast.
When (and maybe if) there is a diplomatic resolution to the current Gulf war, airlines in the region will no doubt bounce back to profitability: their geographical advantage has become entrenched in the dynamic development of international aviation.
For all the other regions, IATA forecasts a softening in margins, net and operating. Its projections show carriers in South America enjoying above-trend operating margins, but notes that the region’s carriers suffer from an extra burden of financing and non-operating costs: the gap between operating profits and net margins being four times larger than the global average.
Overall airline industry revenues are expected to rise by nearly 10% in 2026 to $1.2tn, but for operating margins to fall to a more normal 4% (from the 7%+ enjoyed in the last three years) and net margins to halve to 2%. The $23bn IATA is forecasting for industry net profits averages $4.50 per departing passenger — less than the price of a cup of coffee or the drop-off charge at the airport.
