Middle East war torches airline profits as IATA halves its 2026 forecast

US carriers are absorbing the heaviest blow to their bottom lines since the pandemic, as a widening Middle East conflict and a doubling of jet fuel prices upend an industry that began the year flush with confidence.

The reckoning came into sharp focus this week in Rio de Janeiro, where the International Air Transport Association used its annual summit to slash its global profit outlook. Airlines are now expected to post a combined net profit of $23 billion in 2026, roughly half the previously projected $41 billion and half the $45 billion recorded in 2025. Net profit per passenger is forecast at $4.50, down from $9.10 last year.

The culprit is fuel. IATA expects jet fuel to average $152 a barrel this year, pushing the global fuel bill to roughly $350 billion and accounting for more than 31 percent of operating expenses. The squeeze traces to the war that began on 28 February with a joint US-Israeli strike on Iran, which expanded across the region and saw Tehran close the Strait of Hormuz.

American carriers are not insulated. American Airlines has suspended some summer routes, while Air Canada pulled its service to New York's JFK from June until late October. United moved earliest, with CEO Scott Kirby warning in March that sustained prices could add $11 billion in annual expenses and announcing roughly 5 percent of near-term flights would be cut.

Capacity has tightened sharply. Airlines cut 9.3 million seats across major markets for June through September, according to Cirium.

The paradox, as IATA's Willie Walsh stressed, is that demand remains robust. Passengers want to fly; the seats and the cheap fuel simply are not there. With Washington and Tehran still negotiating, the industry's recovery now hinges on a ceasefire it cannot control.