Category: Top Story

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.

Investors began the week navigating a mix of geopolitical tensions, concerns over artificial intelligence valuations and anticipation ahead of Apple’s (NASDAQ:AAPL) annual developers conference, where the company is expected to outline the next phase of its AI strategy.

U.S. futures point to a mixed open

At 03:32 ET (07:32 GMT), futures tied to the Dow Jones Industrial Average were down 102 points, or 0.25%, while S&P 500 futures gained 0.3% and Nasdaq 100 futures advanced 0.7%.

The mixed performance followed a sharp sell-off on Wall Street on Friday. A stronger-than-expected U.S. employment report increased expectations that the Federal Reserve may need to maintain a tighter monetary stance or even raise rates later this year if energy-driven inflation accelerates.

The S&P 500 posted a 2.64% decline, its worst daily performance of 2026, ending a nine-week winning streak. Technology stocks were particularly weak, with the Philadelphia Semiconductor Index falling more than 10% after Broadcom’s (NASDAQ:AVGO) quarterly results failed to meet the market’s elevated expectations surrounding AI-related growth.

Commenting on the week ahead, Deutsche Bank analysts wrote: “What a backdrop for the main economic event of the week, namely Wednesday’s May U.S. CPI report.”

They added: “The timing is critical with the [Fed]’s next policy meeting, and Kevin Warsh’s first as Chair, a week later. For a while now the case for hiking has looked notably stronger than the case for a cut and last Friday’s payrolls has hugely reinforced that.”

Fresh Iran-Israel clashes unsettle investors

Geopolitical concerns intensified after Iran and Israel exchanged new strikes, casting doubt on the future of a fragile ceasefire brokered by the United States.

The renewed hostilities mark the first direct military confrontation between the two countries since the truce reached in April.

Reports suggest the latest escalation began with an Israeli strike on Beirut, followed by retaliatory actions from Tehran and further Israeli attacks against targets in western and central Iran.

The Wall Street Journal reported that Israel activated air-raid warning systems and intercepted a ballistic missile launched from Yemen. Iran’s Revolutionary Guards also claimed responsibility for attacks on military airbases in southern Israel.

While President Donald Trump maintained that diplomatic efforts remain on track, an Iranian source involved in negotiations told MS NOW that a deal is “no longer feasible at this stage.”

Oil extends gains amid supply concerns

Brent crude climbed 5.1% to $97.81 per barrel as traders continued to assess the risks posed by disruptions around the Strait of Hormuz.

The strategic shipping route remains a key concern for energy markets, given that roughly 20% of global oil and LNG flows pass through the waterway.

Rising crude prices have reignited fears that inflation could accelerate once again, potentially forcing central banks to keep borrowing costs elevated.

RBC analysts noted that “it seems as though good news is being treated as bad news if it stokes fears of higher interest rates.”

Gold pressured by rates outlook and stronger dollar

Gold prices fell to their lowest level in eleven weeks as investors reassessed the outlook for interest rates.

Higher borrowing costs tend to reduce the appeal of non-yielding assets such as gold, while continued demand for the U.S. dollar has provided an additional headwind for bullion.

ING analysts said: “The geopolitical backdrop is also shifting dollar-positive, with most surprised that Brent is not trading even higher now that Iran and Israel are directly exchanging fire.”

Apple’s AI strategy under the spotlight

Attention is also turning to Apple’s Worldwide Developers Conference, which begins on Monday and is expected to feature a range of AI-related announcements.

Investors are looking for evidence that Apple can close the perceived gap with rivals in the race to commercialise artificial intelligence technologies.

The company has faced criticism following delays to planned Siri upgrades and a lukewarm response to some of its initial AI initiatives.

According to BofA Global Research, “The key announcements to watch include an enhanced Siri experience, progress on Gemini-enabled Apple AI, potential Siri app, and broader app-intent and developer tools that could help define Apple’s agentic AI roadmap.”

FTSE 100 edges higher as oil jumps on Middle East tensions. Tate & Lyle agrees takeover while Audioboom ends sale process after record trading.

Market Overview

European markets weakened as geopolitical tensions in the Middle East weighed on sentiment. The FTSE 100 edged higher by 0.11 per cent, while the CAC 40 and DAX fell 0.32 per cent and 0.75 per cent respectively. In the United States, markets were more resilient, with the Nasdaq rising 1.16 per cent and the S&P 500 gaining 0.74 per cent. Investors continued to assess the impact of renewed Iran-Israel hostilities, while concerns around artificial intelligence valuations also contributed to caution across European equities.

Commodity markets reflected the geopolitical backdrop, with Brent crude surging as traders responded to escalating conflict risks and concerns over energy supply routes. Copper advanced modestly, while gold remained softer despite safe-haven demand. Natural gas declined and Bitcoin weakened against sterling. Currency markets were relatively stable, with sterling strengthening against the euro, yen and Australian dollar, while slipping slightly against the US dollar.

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Market Numbers

FTSE 100: Up (0.11%), 10,345.29

CAC40: Down (-0.32%), 8,218.240

DAX: Down (-0.75%), 24,759.05

NASDAQ: Up (1.16%), 29,185.8

S&P 500: Up (0.74%), 7,412.0

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In the Headlines

Takeover Agreement – Tate & Lyle (LSE:TATE)

Tate & Lyle has agreed a £2.7 billion takeover by a US rival, marking a significant transaction in the food ingredients sector. The deal highlights ongoing consolidation activity and provides shareholders with a clear valuation benchmark amid a challenging global economic backdrop.

Sale Process Ends – Audioboom (LSE:BOOM)

Audioboom has ended its strategic review and abandoned plans for a sale after determining that takeover proposals did not adequately reflect the company’s value. The decision follows record first-half trading performance, with management expressing confidence in the group’s standalone growth prospects.

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Currencies (vs GBP)

USD: Down (-0.04%), $1.3344

CHF: Flat (0.12%), Fr.1.06350

EUR: Up (0.03%), €1.1574

JPY: Up (0.05%), ¥213.765

AUD: Up (0.10%), $1.891290

Bitcoin (BTC/GBP): Down (-0.28%), £47,369.1

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Commodities

Copper: Up (0.33%), 6.33348

Gold: Down (-0.45%), 4,308.77

Brent Crude: Up (4.46%), 96.131

Natural Gas: Down (-0.91%), 3.144

European stock markets traded lower on Monday, while oil prices surged, after renewed hostilities between Iran and Israel raised fears over the durability of a U.S.-brokered ceasefire and added fresh uncertainty to global markets.

By 03:03 ET (07:03 GMT), the pan-European Stoxx 600 had fallen 0.9%. Germany’s DAX dropped 1.3%, France’s CAC 40 declined 0.9%, and the FTSE 100 slipped 0.4%.

The latest escalation marked the first direct exchange of attacks between Iran and Israel since a fragile truce came into force in April.

According to media reports, the confrontation was triggered by an Israeli strike on Beirut, the Lebanese capital. Israel has continued to confront Iran-backed Hezbollah forces in Lebanon, although recent clashes had remained relatively contained. Tehran subsequently launched retaliatory attacks, prompting further Israeli military action targeting sites in central and western Iran.

Israel said on Monday that warning sirens had been activated in response to additional attacks originating from Iran. The country also reported intercepting a ballistic missile fired from Yemen, according to the Wall Street Journal. The newspaper also cited Iran’s Islamic Revolutionary Guard Corps as saying it had targeted airbases in southern Israel.

Despite the renewed violence, U.S. President Donald Trump said the developments would not derail Washington’s efforts to secure a broader peace agreement with Iran. However, an Iranian official told MS NOW that such a deal is “no longer feasible at this stage.”

Oil markets reacted sharply to the geopolitical developments. Brent crude, the international benchmark, rose 5.1% to $97.81 per barrel. Although prices remain below previous peaks above $100 per barrel, they are still significantly higher than levels seen before the conflict intensified.

The rise in energy prices has fuelled concerns that inflationary pressures could re-emerge, potentially prompting central banks, including the European Central Bank, to tighten monetary policy further.

Government bond yields across the eurozone climbed to multi-week highs, adding pressure to equity markets. Investors are now pricing in as many as three ECB interest rate increases before the end of the year. Bond yields move inversely to prices.

Beyond geopolitical risks, investors are also reassessing expectations surrounding the artificial intelligence sector. Sentiment weakened following disappointing quarterly results from chipmaker Broadcom (NASDAQ:AVGO) last week, raising questions about the sustainability of the AI-driven market rally.

A stronger-than-expected U.S. employment report released on Friday further reinforced expectations that the Federal Reserve could maintain a tighter policy stance into 2026.

European semiconductor stocks moved lower in early trading, reflecting weakness across technology shares in Asia and extending the decline seen on Wall Street at the end of last week.

UK equities opened lower on Monday as investors reacted to a sharp escalation in tensions between Iran and Israel, prompting a move away from risk-sensitive assets and driving energy prices sharply higher.

The FTSE 100 was down 0.27% in early trading, while losses across continental Europe were more pronounced. Germany’s DAX declined 1.16% and France’s CAC 40 fell 0.86% as markets assessed the implications of the latest military developments in the Middle East.

Sterling eased marginally against the U.S. dollar, slipping 0.01% to 1.3340. Oil prices surged amid concerns over regional stability and potential supply disruptions. Brent crude rose 4.84% to $97.57 a barrel, while West Texas Intermediate gained 4.42% to $94.54.

The sell-off followed direct military exchanges between Israel and Iran, marking the most significant escalation since the ceasefire agreed in April. Israeli forces reportedly carried out strikes against military-related targets in western and central Iran, including facilities linked to the Karoun petrochemical complex in Mahshahr.

Iran responded through the Islamic Revolutionary Guard Corps, which said it had targeted Israeli air bases at Nevatim and Tel Nof as part of what it called Operation Nasr. Further missile launches towards Israel were reported on Monday morning, triggering air raid warnings across Tel Aviv and central parts of the country.

The situation broadened further as Yemen’s Houthi movement launched additional attacks against Israel and announced a complete ban on Israeli-linked maritime navigation in the Red Sea. Meanwhile, Iran suspended civilian flights at several major airports, and reports indicated widespread internet disruptions across parts of the country.

Market participants are also closely monitoring developments around the Strait of Hormuz, a key global energy transit route. Iranian officials indicated that future access arrangements could be subject to revised conditions, adding to concerns over potential disruptions to oil shipments.

Diplomatic efforts continued behind the scenes, with U.S. President Donald Trump reportedly urging restraint in discussions with Israeli Prime Minister Benjamin Netanyahu. However, rhetoric from regional leaders remained confrontational, increasing uncertainty over the direction of the conflict.

Separately, OPEC+ agreed over the weekend to increase production quotas by 188,000 barrels per day in July in an effort to help stabilise energy markets.

UK corporate highlights

Tate & Lyle agrees £2.7 billion takeover offer

Tate & Lyle (LSE:TATE) announced it has agreed to a £2.7 billion cash acquisition by U.S. ingredients group Ingredion, with shareholders set to receive a substantial premium to the pre-offer share price.

Debenhams expands into beauty through Revolution partnership

Debenhams Group (LSE:DEBS) has entered into a licensing agreement with Revolution Beauty (LSE:REVB) to develop fragrance and beauty products under several of its fashion and lifestyle brands, extending its presence into higher-growth consumer categories.