Middle East Conflict and Higher Fuel Prices Cut Airline Profitability in Half, IATA Says

Global airline profits are set to remain positive this year, but escalating tensions in the Middle East and higher fuel prices have significantly weakened the industry’s financial outlook, according to the International Air Transport Association (IATA).

Speaking during the 82nd IATA Annual General Meeting and World Air Transport Summit in Rio de Janeiro, Marie Owens Thomsen, IATA’s Senior Vice President Sustainability and Chief Economist, said the industry’s outlook has deteriorated significantly since the beginning of the year.

“It is definitely not what we expected in January,” Thomsen said, pointing to military developments in the Middle East that have disrupted the industry’s earlier expectations for stronger financial performance.

IATA now projects a net profit of approximately $23 billion for the global airline industry in 2026, representing a profit margin of just 2%. The forecast reflects a substantial decline from earlier expectations and highlights the sector’s vulnerability to geopolitical shocks and rising energy costs.

“If things deteriorate further than the assumptions that we make in our global outlook, then obviously we might be flirting with negative numbers,” Thomsen said, adding that risks remain skewed to the downside.

Despite the weaker outlook, passenger demand continues to expand. IATA forecasts global passenger traffic growth of 2.1% this year, while air cargo volumes are expected to increase by 0.7%.

Thomsen noted that even modest growth is significant given the current environment, as airlines absorb part of the increase in operating costs rather than fully passing those expenses on to consumers.

“The fact that these numbers are positive at all is encouraging at this stage,” she said.

The industry’s outlook remains closely linked to fuel markets and broader economic conditions. Rising fuel prices increase costs for airlines while also reducing consumers’ disposable income, potentially affecting future travel demand.

“If that worsens beyond our assumptions, then we could be flirting with recession-type scenarios and maybe not benefit from the growth that we are predicting,” Thomsen said.

While the industry has repeatedly demonstrated its ability to recover from crises, Thomsen argued that resilience alone is not enough.

“I would say that what the industry is really good at is bouncing back,” she said. “But what we really would want is robustness.”

According to Thomsen, achieving greater financial robustness would require airlines to generate stronger and more sustained profits over time, allowing carriers to strengthen balance sheets and better withstand future shocks.

The updated outlook comes as airlines navigate an increasingly complex operating environment shaped by geopolitical tensions, volatile fuel markets, supply chain constraints, and shifting consumer demand patterns.