2026 Forecast: A Promising Year, Though Much Remains In Question

If there’s one thing that the world’s airlines most benefit from, it’s certainty. When airlines can correctly predict factors like aircraft availability and reliability, airspace safety, oil prices and geopolitical and economic stability, they have a much better idea of their costs and demand for air travel and cargo.

From the beginning, this year has looked highly challenging in terms of predictability. Geopolitical tensions and threats have suddenly closed important airspace routes and made passengers wary of booking travel to certain regions (see Final Word). The industry supply crisis, while it showed signs of improvement late last year, is still limiting the take-up of planned new aircraft, squeezing capacity (though that can be good for yields) and raising maintenance costs. Forecasters said last year they expected crude oil prices to decline 11% in 2026 versus 2025 to about $62 per barrel. Jet fuel prices were also expected to fall, but by only 2.4% from $90 to $88 per barrel. This means that the gap between crude and jet fuel costs, known as the crack spread, continues to widen. Fuel is set to account for 25.7% of airline total operating expenses, down from 26.8% in 2025, placing it as the second highest cost after labor.

Additionally, the expiration of higher-cost hedges from 2025 should allow airlines to realize lower average jet fuel prices that are closer to market levels.

But non-fuel costs are forecast to increase 5.8% to $729 billion next year, with labor costs becoming the largest cost component (28%) as wage growth continues to outpace inflation amid tight labor market conditions.

Maintenance costs are also climbing because of the aging fleet and supply chain disruptions that affect the availability of parts, with airlines having to maintain larger spare parts inventories and seeing higher lease rates, IATA director general Willie Walsh said in December.

But the US strike on Venezuela and growing tensions between Tehran and Washington DC cast major uncertainty over oil prices. On top of that, costs related to purchasing sustainable aviation fuel (SAF) and compliance with CORSIA, the international aviation carbon offsetting and reduction scheme, are growing (see A Grim and Costly Prospect for Aviation Sustainability).

SIDEBAR

A Grim and Costly Prospect for Aviation Sustainability

Aviation mandates, which have required 2% sustainable aviation fuel (SAF) uptake since Jan. 1, 2025, and which are set to rise to 6% by 2030, should be re-evaluated, IATA believes.

“Airlines that need to comply with mandates are unable to get supply; it’s just physically impossible to get, so they can’t meet their obligations,” IATA director general Willie Walsh said in December. “I think these mandates will have to be re-evaluated.”

Walsh also cast doubt on the ability of the 2030 targets that some airlines have set for themselves. “Personally, I believe 10% of SAF in 2030 is beyond the reach of the vast majority of airlines, through no fault of their own,” he said.

Air France-KLM and British Airways parent International Airlines Group (IAG) are among those targeting 10% of SAF by 2030, and while major carriers may be able to secure the necessary supply, Walsh said there was simply not enough SAF for the majority.

Walsh also said it would be “challenging” for the European Union to achieve the 6% target in place for 2030 as part of ReFuelEU Aviation legislation, the next step in the mandates.

Regulators “urgently need to look at what is actually happening versus what they believed would happen,” Walsh said, noting that the introduction of the mandates had not led to greater SAF production. “We’ve seen it lead to a huge increase in the price of SAF as fuel suppliers, in my opinion, abuse their position to extract additional money from the airline industry through these compliance fees that they have introduced, which are artificially increasing the price of SAF for airlines who are trying to comply with their obligations.”

Walsh was referring to compliance fees charged by fuel suppliers on jet fuel, to cover the costs of complying with the ReFuelEU legislation.

“The cumulative impact of poorly designed policy frameworks is that airlines paid a premium of $2.9 billion for the limited 1.9 Mt of SAF available in 2025. Of this, $1.4 billion reflects the standard SAF price premium over conventional fuel,” IATA said.

“Current policies are not having the desired effect,” IATA chief economist and SVP sustainability Marie Owens Thomsen said. “Faced with such facts, regulators must course-correct, ensure the long-term viability of SAF production, and achieve scale so that costs can come down. Mandates have done just the opposite.”

Referring to the industry’s 2050 net zero target, Walsh said: “I think the challenge that we’re facing now is even greater than we expected, without making the progress that we had anticipated in terms of SAF production. I haven’t changed my view that it’s going to be extremely challenging and it’s going to be expensive. I still believe it’s possible.”

–Helen Massy-Beresford

On the general economy, which directly influences how enthusiastic individuals and companies feel about spending money on travel, the outlook is mixed and becoming more so with the increasingly volatile geopolitical situation. On the positive side, however, GDP growth is expected to be stable at 3.1%. IATA chief economist and SVP sustainability Marie Owens Thomsen described the outlook for GDP as “lukewarm,” but generally good for the industry if it remains stable between 3% and 4%. The question is, will it?

Again on the positive side, IATA expects airlines as a global collective to post a net profit of $39.5 billion in 2025 and $41 billion this year. Passenger ticket revenues are expected to increase 4.8% in 2026 to $751 billion versus $716 billion in 2025. Ancillary and other revenues are projected to rise by 5.5% year-over-year, reaching $145 billion in 2026 and accounting for nearly 14% of total revenue, up from 12-13% before the COVID pandemic.

Cargo revenue is forecast to increase 2.1% from $155 billion in 2025 to $158 billion in 2026. The uptick will mostly be driven by continued growth in cargo, particularly in time-sensitive shipments and e-commerce volumes, IATA said (see A Changing Global Trade Environment Brings Risks and Opportunities to Air Cargo).

Total industry revenues are expected to reach $1.053 trillion in 2026, up 4.5% on the $1.008 trillion expected revenues in 2025.

Airline yields, meanwhile, are expected to remain relatively flat while passenger load factors are expected to average 83.8%—a new record—influenced by the continued short supply of new aircraft.

The outcome for airlines, if those numbers come to bear, is that they will achieve a combined total net profit of $41 billion in 2026, up from $39.5 billion in 2025. While this would set a new record, the net profit margin is expected to be unchanged from 2025 at a weak 3.9%. Net profit per passenger transported is also expected to be flat year-over-year at $7.90. Owens Thomsen compared this to iPhone maker Apple, which will earn more selling an iPhone cover than the $7.90 airlines will make transporting the average passenger. She described the airline industry profit margins as “excruciatingly low.”

Passenger numbers are expected to reach 5.2 billion in 2026, up 4.4% on 2025, while cargo volumes are expected to reach 71.6 million tonnes in 2026, up 2.4% versus 2025.

Air cargo’s performance is of note because it defied predictions of gloom, given the increase of use of tariffs as trade policy. “We anticipated a much worse outcome, but people anticipated [the tariffs] and were buying as much as they could before the tariffs took place. China did a rapid redirection,” Owens Thomsen said. “Air cargo totally came to the rescue.”

REGIONAL FORECASTS

At a regional level, airlines in Europe are projected to deliver the strongest financial performance, with a forecasted 2026 net profit of $14 billion and net margin of 4.9%. That means Europe would overtake North America in profitability rankings for the first time. It should be noted that IATA sees the fast-growing market and airlines in Türkiye as the main drivers of this growth.

North American airlines are expected to post an $11.3 billion net profit, or 3.4% margin, this year. Factors driving the ranking drop include stagnating overall growth in the US and a domestic market contraction in the face of uncertainty related to tariffs and tightened immigration enforcement, IATA said.

The US LCC market is also on the verge of a shakeup, with questions about Spirit Airlines’ survivability as it goes through its second Chapter 11 restructuring in quick succession. Allegiant and Sun Country, meanwhile, propose to merge this year, if antitrust permission is granted, which would further change the landscape.

Asia-Pacific airlines, including those in China and India, are expected to see their collective net profit rise slightly from $6.2 billion in 2025 to $6.6 billion this year. Rising tourism activity in the region coupled with growing middle classes are driving this increase. “Asia-Pacific remains the largest contributor to global traffic growth, with load factors projected to reach 84.4% in 2026,” IATA said.

ATW senior editor Kurt Hofmann, who interviewed Air India CEO Campbell Wilson in December (see pg. 10), said, “The order book for new aircraft for India is around 3,000 aircraft, including widebodies. That means the focus is on getting more of that long-haul traffic back to the Indian carriers and not giving everything to, let’s say, the Gulf carriers or to Turkish airlines. Before the privatization of Air India, the whole of India had just 43 widebody aircraft. That is changing dramatically. For Air India itself, the CEO told me there will be a real change for the airline in terms of international services. Its intercontinental fleet of [Boeing] 787s and 777s will be reconfigured with new cabins.

“However, there are challenges for India. As we know, the Pakistan airspace is closed. That means all flights to the US, for example, which is a very important market for India, will take one to three hours longer, which creates a huge impact on connectivity, profitability, load factors, and a lot of things like that.”

Middle East airlines are set to be the strongest performers in terms of net profit margin with an estimated $6.6 billion in 2025 and $6.8 billion in 2026, or 9.3% in both years. Passenger demand continues to be robust, driven by long-haul traffic and the expansion of hub carriers. Governments and airlines are doubling down on infrastructure investments to secure long-term growth, IATA noted. That could change, of course, depending on whether the Iran-US situation diffuses or escalates.

Latin American carriers, similarly, are seeing robust traffic growth and increased intra-regional connectivity that could be derailed by the US military action in Venezuela and threats to Colombia and Mexico. But as of the end of 2025, IATA was forecasting Latin American airlines to post a $2.5 billion net profit for that year and a $2 billion profit for 2026. “With several major carriers in the region realizing the benefits of Chapter 11 restructuring, the region’s environment has shifted from crisis-driven survival to cautious, efficiency-focused rebuilding,” IATA said. Currency fluctuations, however, remain what IATA describes as “a critical headwind” in the region, hence the anticipated year-on-year drop in profit this year.

CAPA senior analyst, Americas, Lori Ranson commented, “The recent [US] rhetoric about Colombia and Mexico, along with the continuing immigration issues, could really put some pressure on demand, and it’s happening just as demand from Mexico to the US was starting to recover. While I think we can all agree that the probability of similar actions in Colombia and Mexico [like the Venezuela action] seems low, I think the instability and any show of force wouldn’t bode well for outbound demand from the US. And overall, it just adds another layer in demand complexity that all airlines are going to have to deal with this year on top of the still ongoing immigration issues and trade policy that’s very unpredictable.”

ATW & Routes senior editor Aaron Karp added, “I don’t think any executives in US airline C-suites would have foreseen they’d have to cancel flights to Puerto Rico because of a military action in the Caribbean. That’s something that would’ve never come up. And there have been notices to airmen being put out by FAA going back to September about avoiding airspace around Venezuela. That has caused some European airlines to pull back on flights to the Caribbean, particularly to Venezuela.”

Africa remains the toughest region for airlines to make money. Low GDP, visa constraints, restrictive bilateral agreements, high passenger fees and high fuel costs all combine to make airline operations difficult and expensive. The region’s airlines are expected to post a net profit of $0.2 billion for 2025 and the same this year.

SUPPLY CHAIN & ULTRA-LONG HAUL

As of the end of 2025, thousands of airliners were grounded because of ongoing engine, maintenance or other issues. And new aircraft deliveries, while improving, are still mostly behind schedule.

“One thing I was struck at looking through the IATA forecast is that there really are some staggering numbers,” Karp said. “There’s a shortfall of 5,000 aircraft that should have been delivered. The delivery backlog is 17,000 aircraft, which is equivalent to 60% of the global fleet, and that’s double from 2007. And airlines are having a lot of trouble because not enough planes are being delivered on time. Over the last several years, fuel efficiency improved about 2% a year, but that flatlined last year. The global fleet was no more efficient in 2025 than it was in 2024. If you just look at the numbers, there’s such a backlog, such a shortfall of deliveries, that airlines are having to operate older aircraft. That means they’re less fuel efficient. That means maintenance costs are higher. I don’t see that problem solving for the next several years.”

On the positive side, new aircraft and engines, when they are delivered, are capable of going further nonstop, and passengers seem to welcome flights that don’t require connections. As more airlines introduce ultra long-haul routes, including narrowbodies replacing widebodies in Asia and across the Atlantic, and the start of Qantas’ Project Sunrise 20 hour+ flights next year using the Airbus A350-1000ULR, that may become a competitive leverage for some airlines and an opportunity for more premium revenue.

Want more information? Go to the ATW Window Seat podcast to hear ATW, Routes and CAPA editors discuss expectations for the global airline industry this year: https://bit.ly/2026look

And IATA executive Thomas Reynaert speaks to ATW’s Karen Walker about why consumer regulations and taxes aimed at airlines can have negative effects: https://bit.ly/4jZSl2j

SIDEBAR

A Changing Global Trade Environment Brings Risks and Opportunities to Air Cargo

Global air cargo traffic is set to grow 2.6% in 2026, according to IATA forecasts, a lower rate of growth than the previous two years, as demand stabilizes and the industry adjusts to the reshaping of global flows of goods sparked by tariff turbulence.

Air cargo was expected to have grown by 3.1% in 2025, IATA head of industry analysis Julia Seiermann said in December.

“For 2026, we expect it to stabilize at 2.6% growth in a context where international trade is actually projected to slow down,” she said, noting that international trade was expected to grow by just 0.5% in 2026. “However, we still expect air cargo to experience more solid growth in comparison as it will benefit from AI-driven investment, growing demand for high value and time-sensitive goods, and also the continuous structural shift.”

Growth continues to be driven by the Asia-Pacific region and Europe, with Africa and Latin America also performing quite well, and expected to continue growing further in 2026. The Middle East and North America saw declines in 2025.

“We are very much operating in a world where tariffs and trade tensions are reshaping global supply chains,” IATA global head of cargo Brendan Sullivan said. “There’s been trade fragmentation increasing, and it’s increased the demand for responsive logistics. Air cargo is the safety valve when global trade gets disrupted.

“Escalating tariffs, particularly between major economies like the United States and China, are forcing companies to reconfigure sourcing, manufacturing and their distribution patterns. Goods that once followed stable routes are now moving through new corridors, sometimes shifting quickly as tariff policies change.”

–Helen Massy-Beresford