Asia-Pacific tipped to stay world’s fastest-growing airline market

“High jet fuel costs and currency depreciation against the dollar will hit Asia-Pacific airlines, especially low-cost carriers,” the report read.

“We expect more meaningful recovery from the fourth quarter onwards. Resilient demand despite higher fares will help the sector as oil price eases.

“In our view, the airlines will stick with plans to invest heavily in new fuel-efficient aircraft, driven by long-term demand prospects, reduced debt post-pandemic, and a diverse funding mix.”

According to S&P, high jet fuel prices brought on by the ongoing crisis in the Middle East could cause “significant deterioration” in airline margins.

“Failure to secure a lasting peace agreement could prolong infrastructure bottlenecks and keep supply tight,” the report read.

“Even with an effective reopening of the Strait of Hormuz, we do not anticipate jet fuel supply flows to recover quickly. That could keep jet fuel prices elevated for the rest of the year, and weigh on airlines margins and cash flows.”

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While weaker local currencies are also a negative factor, the firm believes that Asia-Pacific carriers largely have enough resilience to stay afloat and continue to grow.

“The airlines have deleveraged over recent years, and therefore have stronger balance sheets to absorb hits from higher fuel costs caused by the Middle East conflict, and currency depreciation,” the report read.

“Moreover, we expect passenger air traffic in Asia-Pacific to remain resilient, bolstered by growing middle classes in general and the upward economic trajectories of China and India in particular.

“Still, immediate strains will take a toll on upcoming earnings reports, particularly for low-cost carriers because they have thinner profitability cushions.

“We nonetheless think airlines will push through growth to remain competitive. Giving up aircraft would put them too far back in the line, given lengthy delivery times.”

The report comes after the International Air Transport Association (IATA) in June warned global airline profits for 2026 may be roughly half of previous forecasts.

According to IATA’s outlook, the sector is expected to see a combined total net profit of US$23.0 billion ($32.7 billion) this year, down from a projected US$41 billion, and around half of the US$45 billion it recorded in 2025.

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.