Live from Rio: Profit halves, demand holds

“I’m writing this week from Rio de Janeiro, Brazil, where the global airline industry met for its 82nd IATA AGM. A great deal has changed in those twenty-seven years. What had not changed, until this week, was the direction of travel. For the first time in years the headline forecast moved against the industry rather than for it, and everyone in the room knew why. The cause sat over the whole meeting. War broke out in the Middle East in March, oil prices jumped, and jet fuel followed. Willie Walsh, giving his final report as director general before he leaves to run IndiGo, put the scale of it plainly. Average jet fuel prices are expected to be 70% higher year on year, adding $100bn to the industry’s collective fuel bill. Crude is forecast at $95 a barrel for the year. The crack spread, the premium refiners charge for jet fuel over crude, is expected to average $57 a barrel, a historic high. Fuel now accounts for 31.4% of operating costs, up from 25.4%. That movement in a single line of the cost base is what reset the year. The striking thing, Walsh noted, is that the top line is holding. Demand is holding up even as airlines raise fares to cope. What gives way is growth and margin. Walsh told the meeting to expect profitability to halve from 2025. Net profits fall from $45bn to $23bn, and net margins from 4.2% to 2%. The $23bn figure is also down from the $41bn IATA had projected only in December. Passenger demand, measured in revenue passenger kilometres, is forecast to grow just 2.1% this year. Net profit per passenger drops to $4.50, half the $9.10 of 2025. Walsh gave that last number the line of the week. It will not buy a snack at most of the FIFA World Cup venues this summer. What gives the Rio numbers their weight is the regional split beneath the global average. Every region is forecast to stay in profit this year, with one exception. Middle East carriers are expected to post a collective loss of $4.3bn in 2026, a regional net margin of minus 6.1% and a loss of $21.40 per passenger. The reversal is severe. In 2025 the same carriers earned $7.2bn, with a 9.4% margin and a profit of $31.50 per passenger. Regional demand is forecast to fall 11.4%. No other region comes close. The near complete shutdown of airspace at the outbreak of the war stripped out transfer traffic, hit load factors, and pushed up unit costs. Walsh was generous about the response. He said the Gulf carriers are doing an amazing job maintaining connectivity, while making clear that major financial impacts are unavoidable. The most useful counterpoint to the gloom came from a Gulf carrier itself. Speaking to CNN’s Richard Quest on the sidelines, Qatar Airways Group CEO Hamad al-Khater said the airline was not facing a critical fuel shortage and had taken extensive measures to protect operations. His framing of the rebound was the one worth holding on to. The airline had expected a U-shaped recovery, he said, and it is coming closer to a V-shape right now, with demand bouncing back at a surprising level. Passenger load factors have climbed back above 80%, with particularly strong performance between India and the United States, and rising flows across China and Africa. Fuel remains a risk to be steered through on pricing, he said, but the loads speak for themselves. The industry-wide number is an average. The shape of any one carrier’s recovery depends on the strength of its network, and on this evidence Doha’s is recovering faster than the regional figure implies. That said, IATA’s read on the longer path deserves attention in Doha. The association expects the near-term recovery to be driven more by pricing than by a rapid return of volume, with structural advantages supporting traffic over time, though potentially at lower margins, in a way that could reshape the hub model. The Gulf’s premium was built on the efficiency of the sixth-freedom connection. When the airspace that connection depends on becomes unreliable, the premium is exposed. A V-shaped rebound in loads is the right answer to that risk. It is not a reason to treat the risk as closed. The fare question ran through every leader interview. Scott Kirby of United, which runs the second most profitable airline in the United States, said customers keep booking even with fares up around 20%, and that they could rise further if fuel costs climb again. Ben Smith of Air France-KLM, speaking at the meeting, said the group may need to raise ticket prices to offset the fuel costs driven by the war. The trade is recovering some of the shock through price. It is not recovering all of it. The second theme ran almost as loud as fuel. Walsh said airlines are paying more for fuel while flying fleets that are less efficient than planned, because manufacturers have not delivered aircraft and engines on time. He did not soften it. His message to the engine makers, he said, was to stop gouging the industry and get back to making engines that work and that last, adding that “gouging” was a toned-down version of what he had planned to say. The order backlog has reached 18,100, more than half the active fleet. The average fleet age has climbed to a record 15.2 years. Kirby was sharpest on the supply side. He told reporters that engine shortages would be the biggest constraint for at least the next five years, and that the lesson for Boeing and Airbus was never again to build an aircraft with only one engine option. The wider cost is structural: The shortage of new aircraft halted the industry’s gains in fuel efficiency in 2024 and 2025 for the first time in its history. Essentially, the Gulf had the industry’s best margins in 2025 and will carry its only regional loss in 2026. The same geography that built the hub now sits at the centre of the disruption. Qatar Airways’ answer, a recovery bending towards a V rather than a U, is the strongest evidence on the floor that network quality still wins. The carriers that come through this will be those that hold their network, manage the fuel exposure they cannot hedge away, and treat the airspace risk as a permanent planning input rather than a passing event. n The author is an aviation analyst. X handle: @AlexInAir.

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