A war with Iran, higher jet fuel prices and restrictions on air routes are increasing the pressure on European airlines, according to Reuters. The industry body IATA has lowered its forecast for global carriers’ combined net profit for 2026 to $23 billion, whilst EASA has advised EU operators to avoid flying over several Gulf states.
Briefly about the main points
- IATA has halved its profit forecast for the industry for 2026.
- Airline fuel costs are forecast to reach 350 billion dollars.
- EASA recommends avoiding flights over five Gulf countries.
- High demand does not offset the faster rise in operating costs.
- Small transport operators with weak balance sheets face the greatest risks.
Fuel is eating into profit margins
On 7 June, IATA lowered its forecast for the aggregate net profit of the world’s airlines in 2026 to $23 billion. This is roughly half its previous estimate of $41 billion and lower than the estimated $45 billion for 2025.
According to the association’s forecast, fuel costs will rise by almost 40% — to 350 billion dollars. The average price of aviation fuel is expected to stand at $152 per barrel, compared with $90 a year earlier, whilst its share of operating costs will rise from 25.4% to 31.4%.
Airlines have generally hedged around a third of their expected fuel consumption. This provides them with some protection against a sudden price spike, but does not eliminate the effects of a prolonged rise in prices, according to IATA.
Security restrictions are causing route changes
On 14 July, the European Aviation Safety Agency issued a bulletin, valid until 29 July, advising EU operators not to operate flights at any altitude in the airspace of Bahrain, Kuwait, Qatar and the United Arab Emirates, as well as over part of the Gulf of Oman.
EASA explained that the recommendation was based on the risk of missile and drone attacks, debris from interceptions, the active operation of air defence systems, and the possibility of civilian aircraft being misidentified. For airlines, this could mean longer routes, flight cancellations and less predictable timetables.
Demand is rising, but there is little margin for error
According to estimates IATA, in 2026, the average seat load factor will reach a record 84%, passenger numbers will stand at 5.1 billion, and passenger revenue will rise by 9.2%. At the same time, operating costs are forecast to increase by 13%.
The industry’s net margin is expected to be just 2%, or $4.50 in profit per passenger, compared with $9.10 a year earlier. The IATA Director General Willie Walsh stated that smaller carriers with weak balance sheets «will undoubtedly face difficulties».
This suggests that the main challenge facing financially vulnerable companies is not a lack of passengers, but their limited ability to cover higher costs and cope with instability in their route network.
The agreement concerning EasyJet and the situation at AirBaltic
Reuters reported on the prospect of a possible takeover of EasyJet. Meanwhile, on 10 July, the company clarified that its board of directors had only agreed in principle with Apollo on the financial terms of a potential cash offer — 7.15 pounds sterling per share. There is no binding offer, and it is not guaranteed that one will be made.
As for AirBaltic, on 29 May the Latvian Ministry of Transport announced the first instalment of €6.4 million on a €30 million government loan. The loan is due to be repaid by 31 August 2026. The Ministry also stated that the airline is operating flights as scheduled, reviewing the profitability of its routes, optimising capacity and managing its fleet flexibly.
Pressure on smaller hauliers may intensify
The combination of higher-priced aviation fuel and restrictions in key air corridors is having a disproportionate impact on small airlines with limited liquidity. Avoiding hazardous areas increases costs and reduces the flexibility of the route network.
The IATA forecast describes the state of the industry as a whole, rather than predicting the future of individual airlines. However, with margins already low, even a further moderate rise in fuel prices or a decline in summer traffic could prove particularly painful for carriers with debt or limited access to finance.
