Iran war cuts projected global airline profits in half

While total industry revenue is expected to rise 9.4 per cent to US$1.165 trillion, net profit per passenger transported will be slashed in half to US$4.50. This will bring net profit margins down to 2.0 per cent, less than half of 2025’s 4.2 per cent.

This is largely due to a forecasted roughly 40 per cent spike in fuel costs from $252 billion in 2025 to $350 billion in 2026, said IATA director general Willie Walsh, with jet fuel prices expected to increase by 70 per cent over last year.

“All airline bottom lines are suffering from the rapid 70 per cent rise in jet fuel prices. Some of the additional cost is being recuperated by adjusting prices and improving efficiency, but it will not be sufficient to maintain profitability at the previous year’s level,” he said.

“Smaller carriers that started the year with weak balance sheets are certainly struggling. At the regional level, all are in the black but with sharply reduced financial performance, with the exception of the Middle East.

“The Gulf carriers face operational uncertainty following a near complete shutdown of airspace at the outbreak of the war. These carriers are doing an amazing job maintaining connectivity, but major financial impacts are unavoidable.”

Asia-Pacific airlines are tipped to bring in US$6.6 billion (AU$9.4 billion) for the year, down from US$9.8 billion last year, with a drop in profit margins from 3.5 per cent last year to 2.1 per cent in 2026 amid declines in both demand and capacity.

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Both Qantas and Virgin have increased airfares due to higher fuel costs after Iran effectively closed the Strait of Hormuz, which sees around 20 per cent of global oil traffic. The major carriers have also cut capacity on domestic services.

According to IATA, the Asia-Pacific region “relies heavily on crude oil imports from the Gulf and the lack of such supplies can cause more acute pressure on refineries and create jet fuel shortages as well as higher jet fuel prices than in other regions”.

“This environment is already prompting capacity adjustments, and longer routings, caused by airspace restrictions, lead to increased fuel burn, tighter effective capacity, and higher unit costs,” the peak body said.

“Demand fundamentals remain supportive with both domestic and international passenger traffic continuing to grow. In fact, some Asia Pacific carriers are benefitting from shifting traffic flows linked to the Middle East conflict, particularly on Europe–Asia routes.

“Cost pressures are amplified by the depreciation of several Asian currencies, which raises the local currency cost of US dollar-denominated expenses, most notably fuel.”

In the freight market, IATA does note that disruptions at Middle East hubs have “created additional opportunities for Asia-based carriers to capture cargo traffic, particularly on Europe–Asia trade lanes”.

“However, regulatory changes in Europe, including tighter customs requirements for low-value shipments, may weigh on e-commerce volumes,” it said.

“Overall, while cargo growth is likely to moderate, capacity constraints and rerouting effects should keep market conditions relatively tight.”

The Australian Government in this year’s budget announced a new minimum jet fuel reserve requirement of 50 days.