(Updates with airline oppsition to Emissions Trading Scheme Expansion, paragraphs 15-17)
The war in the Middle East, which has disrupted travel and led to an oil price surge, is expected to halve the profitability of the airline industry this year, the International Air Transport Association said on Sunday.
Airlines are projected to log a total net profit of $23 billion this year, roughly half of 2025's $45 billion and far below the prior outlook for $41 billion, according to the analysis.
Net profit margin is also forecast to decline year over year to 2% from 4.2%, and to drop from the previous projection of 3.9%, as a 70% rise in jet fuel prices squeeze profits, IATA said. Net profit per passenger is expected to fall to $4.50 as result, about half of the prior year's $9.10.
"The regional landscape, however, is highly differentiated," IATA highlighted, with airlines in the Middle East expected to fall in the "red" zone, while those in other regions possibly posting reduced profits.
"At the regional level, all are in the black but with sharply reduced financial performance, with the exception of the Middle East," IATA's Director General Willie Walsh said, adding that "the Gulf carriers face operational uncertainty following a near complete shutdown of airspace at the outbreak of the war."
Meanwhile, in terms of revenue, the report showed that the industry could generate $1.165 trillion this year, a rise from 2025's $1.065 trillion, with passenger load factor reaching a new record of 84%. In 2025, airlines filled 83.5% of seats.
The number of passengers is also forecast to grow 2.4% year over year to 5.1 billion, IATA said, and cargo volumes may increase 0.2% to 71.7 million metric tons.
However, higher operating expenses are expected to offset revenue growth, resulting in much lower profitability for this year.
IATA projects fuel costs to rise almost 40% to $350 billion in 2026 from the prior year's $252 billion, as jet fuel prices jump 70% to $152 per barrel. Fuel consumption is expected to remain unchanged at 104 billion gallons.
"Globally, airlines have hedged roughly one-third of their expected fuel consumption for 2026, which helps smooth short-term cost volatility but does not eliminate exposure to sustained price increases," the association said.
IATA also noted that the cost of sustainable aviation fuel is estimated to reach $4.3 billion this year, for a total volume of 2.4 mmt, equivalent to 0.9% of fuel consumption. The figures are down compared with earlier projections, due to a narrower price spread between SAF and conventional jet fuel.
"Airlines also bear the cost of compliance with the Carbon Offsetting and Reduction Scheme for International Aviation," the association said, which is estimated to stand between $1.2 billion and $1.6 billion, to offset carbon dioxide emissions in the range of 28.8 mmt to 81.5 mmt.
In the EU, airline chief executives have opposed the Commission's plan to expand its Emissions Trading System to cover international flights, according to a letter seen by Reuters.
The letter, addressed to Commission President Ursula von der Leyen, reportedly highlighted that expanding carbon pricing could further penalize passengers and businesses due to resulting increases in the costs of airfare and cargo.
The Commission has received the letter and will provide a response in due course, an official familiar with the matter told.
The signatories include heads of Air France-KLM, British Airways-owned IAG, Lufthansa, Ryanair, AirBaltic, easyJet, and TUI.
The Commission is currently reviewing the ETS directive and assessing several policy options, while also considering stakeholders' views, according to the official. The outcome of the review will be presented in mid-July.