Global Airlines Face Profit Plummet Amid Iran Conflict and Soaring Fuel Costs

The global airline industry is bracing for a significant reduction in profits for 2026, primarily due to the conflict in the Middle East and the resultant surge in fuel costs. The International Air Transport Association (IATA), which represents over 370 airlines accounting for about 85% of global air traffic, has slashed its 2026 profit forecast nearly in half, citing geopolitical tensions and volatile fuel prices as key factors.

IATA now expects the global airline industry to post a combined net profit of $23 billion in 2026, significantly lower than its previous projection of about $41 billion and a decline from the $45 billion profit seen in 2025. This adjustment underscores the airline sector's vulnerability to geopolitical shocks, fuel price fluctuations, and operational disruptions despite robust passenger demand and increasing revenues.

The Middle East conflict, triggered by US and Israeli airstrikes on Iran, has forced airlines to reroute flights, adding hours to journeys and increasing fuel consumption. Simultaneously, oil prices have surged due to fears of supply disruptions, leading to higher jet fuel prices and wider refinery margins. This perfect storm has left airlines facing a steep increase in their largest cost component: fuel.

According to IATA Director General Willie Walsh, the significant increase in jet fuel prices and the disruption to airlines in the Gulf region are the primary reasons for the reduced forecast. Walsh also warned that higher fuel costs could lead to the bankruptcy or acquisition of smaller airlines, citing the recent shutdown of US low-cost carrier Spirit Airlines as an example of the conflict's impact on the aviation sector.

Airlines are expected to respond to the challenging environment by cutting unprofitable routes to protect their margins. Meanwhile, with demand remaining robust but capacity decreasing, airfares, which have already surged since the start of the Iran conflict, are unlikely to decrease soon. Walsh noted that in such an environment, fares will likely remain elevated, affecting consumer travel plans and airline profitability.

IATA forecasts that the industry's fuel bill will rise to about $350 billion in 2026, up from roughly $252 billion in 2025, with fuel accounting for nearly a third of operating costs. This increase in fuel costs is eroding profitability per passenger, with airlines now expected to earn about $4.50 per passenger, roughly half of last year's level.

On a positive note, IATA expects industry revenues to rise 9.4% to around $1.16 trillion in 2026, driven by steady travel demand, higher fares, and growing income from additional services such as seat upgrades and onboard amenities. However, aircraft shortages, exacerbated by delivery delays at Boeing and Airbus, are forcing airlines to keep older, less fuel-efficient planes in service longer, thereby raising maintenance bills and hindering efforts to improve margins.