The widening conflict in the Middle East has emerged as the biggest threat to the global airline industry’s profitability this year. At the meeting in Rio de Janeiro on Sunday, the International Air Transport Association (IATA) sharply downgraded its 2026 financial outlook, citing the fallout from the US and Israeli strikes on Iran. The conflict triggered widespread airspace restrictions across the region, forcing airlines to avoid key flight corridors, lengthening journey times, increasing fuel burn and reducing aircraft utilisation.
The disruption has been especially severe for Gulf carriers such as Emirates, Qatar Airways and Etihad Airways, which sit at the heart of one of the world’s busiest long-haul transit networks. The near-complete shutdown of regional airspace during the initial phase of the conflict exposed the vulnerability of airlines that depend heavily on the Middle East as a global aviation crossroads.
“War-related disruptions in the Middle East and rising fuel costs have worsened the outlook for airlines,” IATA Director General Willie Walsh said. Global airline profits are now expected to nearly halve from $45 billion in 2025 to $23 billion this year, while industry margins are projected to narrow from 4.2% to 2%.
The downgrade underscores how quickly geopolitical shocks can alter the industry’s fortunes. While passenger traffic remains resilient and industry revenues are still expected to exceed $1.1 trillion this year, higher fares and ancillary revenues have not been enough to offset a sharp rise in costs.
Staggering $350 Billion Fuel Bill
The biggest challenge remains fuel. IATA estimates the global airline fuel bill will jump to about $350 billion this year from roughly $252 billion in 2025, with fuel accounting for nearly a third of operating expenses. A 70% rise in jet fuel prices has squeezed margins across the sector, leaving airlines with little room for error.
“Airlines are bearing the brunt of the fuel shock. Fares are rising, but carriers are still absorbing part of the increase,” Walsh said, noting that net profit per passenger is expected to fall to just $4.50, roughly half last year’s level.
Indian Carriers Squeezed
The pressure is already visible in India. Air India reported a record annual loss of about $2.8 billion in FY26, according to disclosures by Singapore Airlines, as the Iran conflict, closure of Pakistani airspace to Indian carriers, elevated fuel prices and aircraft supply constraints weighed heavily on operations. IndiGo, meanwhile, posted a consolidated net loss of ₹2,536.9 crore in the March quarter, hurt by foreign exchange losses and disruptions linked to Middle East airspace restrictions.
Walsh warned that prolonged cost pressures could trigger consolidation among weaker airlines and force carriers to cut unprofitable routes. Adding to the strain are continuing aircraft delivery delays at Boeing and Airbus, which have compelled airlines to retain older, less fuel-efficient aircraft, raising maintenance costs and limiting capacity growth. With supply remaining constrained, airlines are expected to keep fares elevated even as profitability comes under increasing pressure. Walsh will take over as IndiGo’s CEO later this year.
