European airline shares came under pressure on Monday after the International Air Transport Association (IATA) sharply reduced its forecast for global airline profitability in 2026, warning that soaring fuel costs linked to disruptions in the Middle East are expected to weigh heavily on the sector.
Shares of IAG (LSE:IAG), Air France-KLM (LSE:AF), Lufthansa (TG:LHA), Wizz Air (LSE:WIZZ) and Ryanair (LSE:0A2U) declined between 1.47% and 2.1% by 04:40 ET (08:40 GMT). easyJet (LSE:EZJ) proved more resilient, falling 0.86%.
Fuel costs drive sharp downgrade to earnings outlook
IATA now forecasts the global airline industry will generate net profits of $23 billion in 2026, down sharply from $45 billion in 2025 and significantly below its previous projection of $41 billion.
The industry’s net profit margin is expected to narrow to 2.0% from 4.2% a year earlier, while profit generated per passenger is projected to fall from $9.10 to $4.50.
“Profits will shrink from $45 billion in 2025 to $23 billion this year. And margins will shrink from 4.2% to 2.0%,” said Willie Walsh, IATA’s Director General. “It won’t even buy you a hot dog at most of the FIFA World Cup venues.”
According to IATA, the primary challenge facing airlines is the sharp increase in fuel expenses.
Jet fuel prices expected to surge
The association expects jet fuel prices to average $152 per barrel in 2026, compared with $90 per barrel in 2025, based on an assumed average Brent crude price of $95 per barrel.
As a result, total fuel expenditure is forecast to jump 40% to $350 billion from $252 billion in 2025. Fuel is expected to account for 31.4% of airline operating costs, up from 25.4% last year.
Overall operating expenses are projected to rise to $1.117 trillion, exceeding the pace of revenue growth. Industry revenue is expected to increase 9.4% to $1.165 trillion.
European carriers face profit squeeze
European airlines are expected to experience a significant decline in profitability under the new forecasts.
IATA projects net profit for the region’s carriers will fall to $9.60 billion in 2026 from $13 billion in 2025. Net margins are forecast to decline from 4.5% to 3.1%, while profit per passenger is expected to drop to $7.50 from $10.30.
Although European airlines had hedged approximately 70% of their fuel requirements before the latest crisis, IATA warned that higher fuel prices will increasingly affect earnings as existing hedging contracts expire.
Middle East airlines face the steepest decline
The most severe impact is expected in the Middle East, where airlines are forecast to move from a combined net profit of $7.20 billion in 2025 to a net loss of $4.30 billion in 2026.
Demand, measured by revenue passenger kilometres, is expected to decline by 11.4% across the region.
Elsewhere, North American carriers are projected to generate net profits of $9.40 billion, down from $12.40 billion, while airlines in the Asia-Pacific region are expected to see profits fall to $6.60 billion from $9.80 billion.
“Smaller carriers that started the year with weak balance sheets are certainly struggling,” Walsh said.
Returns fall below cost of capital
IATA also expects returns on invested capital to decline to 4.3% in 2026, compared with 6.6% in 2025. That figure remains below the estimated weighted average cost of capital of 8.5%.
Despite the weaker profitability outlook, the industry is still expected to generate total revenues of $1.165 trillion, carry 5.10 billion passengers and achieve a record load factor of 84%.
The figures highlight the resilience of travel demand but also underline the growing financial pressure airlines face as fuel costs continue to climb.
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