Global airline executives are preparing for a sharp deterioration in industry conditions as rising jet fuel prices and airspace disruptions linked to the Iran conflict threaten to erase expected record profits for 2026.
The crisis is expected to dominate discussions at the International Air Transport Association (IATA) annual meeting in Rio de Janeiro this weekend, where hundreds of airline leaders, manufacturers and financiers will assess the impact of escalating fuel costs and route disruptions.
IATA represents more than 370 airlines accounting for around 85 percent of global air traffic. Prior to the escalation in the Middle East, the industry had been forecasting record profits of up to $41 billion for the year.
However, analysts now expect a significant downward revision as fuel prices surge and operational costs rise due to rerouted flights and restricted airspace access over conflict-affected regions.
Moody’s Ratings last week revised its global airline sector outlook to “negative” from “stable,” warning that disruptions linked to the Iran conflict and instability around the Strait of Hormuz could materially reduce operating profits in 2026.
More Read
The rating agency said global airline earnings could fall by more than 35 percent next year before recovering in 2027, reflecting the severity of the fuel price shock and supply chain pressures.
Airlines have already begun responding by raising ticket prices, cutting unprofitable routes and delaying expansion plans in an effort to preserve cash flow.
Industry executives say the conflict has added new uncertainty to a sector still recovering from pandemic-era disruptions, with fuel costs emerging as the most immediate and widespread pressure point.
More Read
Global passenger traffic also contracted in April for the first time since the post-pandemic recovery began, with the Middle East region recording the sharpest declines.
Air India chief executive Campbell Wilson said rising fuel costs and airspace closures were forcing carriers to reassess route profitability.
“When you take on all those competitive dynamics, the added cost of this extra flying, the added cost to fuel, it just makes some routes uneconomic,” he said.
The impact is uneven across regions and business models. Airlines with strong premium demand, particularly in North America and parts of Europe, have been able to partially offset rising costs through fare increases, although industry leaders acknowledge that current pricing still does not fully cover fuel expenses.
In the United States, Southwest Airlines chief executive Bob Jordan said carriers had raised fares multiple times since February without seeing a significant drop in demand, though he noted profitability pressures remain.
Gulf carriers, including Emirates and Qatar Airways, face particular challenges due to their reliance on hub-and-spoke operations through Dubai and Doha. Longer flight paths caused by airspace restrictions have increased fuel consumption and operational complexity.
More Read
European airlines may benefit from some rerouting of long-haul traffic away from disrupted corridors, but they are also contending with higher fuel costs and constraints linked to Russian airspace closures and environmental compliance requirements.
In Asia, airlines such as Air India and IndiGo are facing added pressure from fuel costs, aircraft shortages and engine reliability issues, while currency weakness in Japan is amplifying import costs for fuel.
Latin American carriers are also exposed, with weaker currencies limiting their ability to absorb higher fuel expenses, although limited competition in some markets has allowed partial fare pass-through.
Aircraft supply constraints are compounding the industry’s challenges, with delayed deliveries from Boeing and Airbus forcing airlines to operate older, less efficient fleets.
United Airlines chief executive Scott Kirby said hundreds of aircraft remain grounded globally due to engine shortages, exacerbating capacity constraints and cost pressures.
“There are not enough engines and they’re not going to be for many, many years,” he said.
The combination of higher fuel prices, operational disruptions and supply bottlenecks is also reviving industry consolidation discussions, as weaker carriers struggle to withstand sustained margin pressure.
The collapse of U.S. budget airline Spirit Airlines has intensified concerns about low-cost carrier viability in a higher-cost environment, while potential merger speculation has resurfaced across several markets.
Industry analysts say the current shock could accelerate structural changes in global aviation, reshaping competition, pricing models and network strategies across regions as airlines adjust to a more volatile energy and geopolitical landscape.
