Ground crews load cargo and supplies onto planes from airlines including Lufthansa Group, Emirates, Austrian Airlines and British Airways, parked at Tom Bradley International Terminal (TBIT) at Los Angeles International Airport (LAX) in El Segundo, California, on September 11, 2023.
Patrick T. Fallon | AFP | Getty Images
RIO DE JANEIRO — Hundreds of airline leaders gathered at the International Air Transport Association’s annual meeting in Brazil this week to discuss rising fuel costs, plummeting profits, engine reliability issues and elusive emissions reduction targets.
Towards the end of the rally in Rio de Janeiro, news broke that Iran and Israel had exchanged attacks for the first time since the ceasefire went into effect in April. For airline executives facing ongoing turmoil since the first U.S. and Israeli attacks on Iran on February 28, this seemed like just another moment in the Muti-Saw of 2026. The stance of airline executives so far has been to wait and see.
Here are some takeaways from the gathering:
profits dwindle
Fuel costs have more than doubled in some regions since the start of the Iran war, as the vital Strait of Hormuz has been effectively closed for an extended period of time.
IATA said airlines around the world are absorbing a $100 billion increase in fuel costs this year and that travel restrictions, combined with airspace closures due to Middle East attacks, are likely to cut airline profits in half this year.
Willie Walsh, the organization’s outgoing executive director, said net income will fall from $45 billion in 2025 to $23 billion in 2026, and the net profit margin will fall to 2% this year from 4.2% last year.
Even though fares are rising, profits will take a hit because airlines won’t be able to cover their full fuel costs this year.
Travel demand is recovering, but winter is approaching
Airline executives told CNBC that customers continue to book their flights.
Etihad Airways, based in Abu Dhabi, United Arab Emirates, initially felt demand was down this year due to the turmoil in the Middle East. But Etihad Aviation Group’s group chief executive, Antonoaldo Neves, said in an interview that the number of tickets sold was about the same as before the conflict, seasonally adjusted.
united airlines Scott Kirby, CEO of America’s second most profitable airline, said customers are continuing to book even though fares have increased by about 20% and could rise further if fuel costs continue to rise.
He said he was surprised by the resilient booking. “I think the economy is stronger than people think,” he said in an interview with CNBC. Additionally, because the United States produces so much oil, it is better protected from oil supply shocks than other regions.
Summer bookings are strong, and airlines are getting better at managing capacity amid high fuel prices, cutting back on unprofitable routes and reducing the number of flights they operate. The big question is what happens after the main summer and fall peaks.
“This portends a strong summer peak season in the north,” Walsh said of the current trend. “The big unknown is how well travelers and shippers can withstand higher connectivity costs.”
Another issue is what will happen to fuel prices in the future.
“If prices remain the same, certainly fewer people will be able to travel,” said Kamil Al Awadi, former CEO of Kuwait Airways and vice president for Africa and the Middle East at IATA.
I can’t stop ordering due to FOMO on airplanes.
Aircraft manufacturers said they have not seen a slowdown in orders due to soaring fuel prices.
Airbus and Boeing will continue to sell out some of their most popular jets until the beginning of the next decade. Airlines typically plan their fleet growth years in advance, and most of the price of an aircraft is paid when the airline receives the aircraft.
Etihad Airways’ Neves told CNBC that the airline wants to buy more jets to supplement an existing order book of several dozen jets, but he declined to say how many, saying only “more than 10.”
A spokesperson for Brazilian aircraft maker Embraer said one risk is that customers may not exercise the option to increase existing orders, but the company does not see that happening so far.
Boeing is scheduled to report May orders and deliveries on Tuesday morning.
Other airlines may go bankrupt due to rising fuel prices
In May, America’s iconic low-cost carrier Spirit Airlines was hit by a longstanding problem. The company has grappled with engine recalls, failed mergers and changing consumer tastes while carrying significant debt. But rising fuel prices were the last straw for the discounter, the company told a U.S. bankruptcy court this spring.
IATA’s Mr Walsh said at a press conference that other airlines could similarly go bankrupt due to rising fuel costs.
This means profitable, cash-rich airlines that have taken advantage of the K-shaped economy and changing demand for high-priced luxury travel are in a better position than more price-sensitive airlines.
What is the cost of this “engineering marvel”?
Airline CEOs are frustrated with engine manufacturers who have promised to improve fuel efficiency with new generations of engines. While there are fuel savings, those savings are being wasted as reliability is disappointing and airlines are forced to repair engines sooner than expected, executives said.
On top of that, not enough numbers are produced to satisfy the carriers. boeing and increased power for Airbus.
Alexis von Hohensbroek, CEO of Canada’s WestJet, told CNBC in an interview before the IATA general meeting that the new engine is a “marvel of engineering” that promises fuel savings of about 15 per cent more than previous models.
“But pushing the limits can sometimes come at the cost of reliability, and what we are all seeing is that these engines have to undergo unscheduled maintenance much more frequently than previous generation engines,” he said.
companies like ge aerospace Rolls-Royce and Rolls-Royce, which is enjoying a windfall from increased demand, said it was busy adding repair and overhaul capacity.
