Flying fuller aircraft and the adaptability of air cargo helped airlines weather unpredictability last year and provides a strong base for fresh challenges this year, writes Graham Dunn
After all the geopolitical and tariff uncertainties of 2025, it is perhaps unsurprising that airlines entered this year with a degree of caution.
Delta Air Lines Chief Executive Ed Bastian, speaking in January as the airline outlined hopes of boosting earnings a fifth this year, offered a reminder of the dangers of projecting ahead.
“If you look at last year and where we were a year ago, we thought we were going to have a banner year, and we gave guidance similar to what we are giving today, and it got derailed a little bit,” said Bastian.
Two months into this year and the industry’s post-Covid resilience was being put to the test again, as disruption escalated following Israeli and US air strikes against Iran and the latter’s retaliatory action against several Gulf states.
Exactly how long and deep the Middle East impact will be remains unclear. Already, however, the indications are that airlines will trim capacity, at least in the short term, to counter disrupted markets and where the spike in fuel costs makes flying unprofitable.
Cargo adapts
However, the industry can take some comfort from how it handled multiple challenges in 2025.
It was the impact on global trade from the uncertainty of increasing tariffs that drove much of the industry’s concern around performance last year. However, the resulting shifts in trade more than helped ride out tariff impact in 2025.
That, together with lower fuel costs and the relatively contained nature of geopolitical flashpoints, translated into a better financial year for airlines than many anticipated. The International Air Transport Association (IATA) reported a stronger-than-expected industry profit of US$39.5 billion for 2025.
That improved performance owed much to the role of air cargo, not just in terms of delivering to airline bottom lines, but more broadly in helping support economic growth.
“Cargo, and the contribution cargo makes to profitability, has been greater than we originally expected,” noted IATA Director General Willie Walsh in presenting the outlook. “That has been a surprise given everything that has been talked about in terms of supply chains issues and tariffs. We have just seen trade lanes have adapted.”
While there was a decline in cargo volumes last year in the Asia–North America trade lane (the world’s largest), there was a double-digit rise in freight carried in the second-biggest market, Asia–Europe.
Economic backdrop
Even before events in Iran, developments in the opening weeks of 2026 gave little reason to suggest any alleviation in geopolitical flashpoints or trade disputes. But the initial underlying economic backdrop for this year was relatively positive.
The International Monetary Fund (IMF) in its January World Economic Outlook raised its expectations for global economic growth this year to 3.3% from 3.1% three months earlier. That in part stems from the resilience and adaptability of global trade to the imposition and/or threat of tariffs, as well as surging investment in technology, particularly AI. The strength of the latter, though, also could be a risk.
“Global growth has been impressively resilient amid trade disruptions, but this masks underlying fragilities tied to the concentration of investment in the tech sector,” the IMF said, while noting the negative growth effects of trade disruptions are likely to build up over time.
The extent to which the Middle East situation has taken this outlook off course will become clearer when the IMF issues its next World Economic Outlook in April.
Airline profits have to some degree been supported by the capacity constraints that have resulted from an array of supply chain and aircraft availability challenges, affecting both aircraft deliveries and operation of the existing fleet. While this has meant lost revenue opportunities in terms of airlines’ ability to fly new routes with more efficient aircraft, the enforced capacity discipline has supported higher yields.
There are signs these challenges are easing. Several airlines reported having reached “turning points” last year in the engine issues which have hit the availability of the in-service fleet, while aircraft production levels are increasing.
Aviation intelligence firm IBA is projecting aircraft deliveries will rise again this year to reach around 1,800. However, IATA still expects the mismatch between airline requirements and production will not unwind before 2031.
“What all of this amounts to is record high passenger load factors, so the aircraft are flying exceptionally full,” said IATA Chief Economist Marie Owens Thomsen. Industry passenger load factor reached 83.7% last year and IATA has been projecting a further small rise to 83.8% in 2026 as passenger traffic growth is seen outpacing additional capacity.
Again, having operators flying higher loads is positive in terms of airline financial returns. However, handling fuller flights adds pressure into a stretched system, and not all the passenger growth will translate into new routes.
Regional differences
Notably, Europe last year took over from North America – which has been the industry profit leader over the last decade – as the most profitable region. IATA expects this trend to continue in 2026.
While North American carriers will still be the second-most profitable region this year, it has presented an increasingly mixed picture.
Delta and United Airlines in particular have enjoyed strong fortunes, something both carriers expected to continue amid a strong start to bookings for the year. By contrast, low-cost carriers in the US have struggled, curtailing capacity and repositioning their market offerings, moves they hope will bear fruit with greater profits this year.
IATA sees continued steady profitability in Asia–Pacific, projected as enjoying the fastest passenger traffic growth of any region this year at 7.3%.
Profits remain in short supply for African carriers. “It is still very difficult for airlines in Africa to make any kind of profits, because of policy fragmentation – and they have on average 20% higher fuel costs than everybody else and all kinds of difficulties that are hard for the airline to fix,” noted Owens Thomsen.
Original expectations for Middle East carriers this year were positive, IATA projecting profits in line with the $6.6 billion they made in 2025. However, the temporary suspension of air services in several key Gulf states – with little clarity of when normality will return – has changed everything for operators in the region. And such is the scale of the Gulf hubs, the impact of prolonged disruption in services to the region will be felt beyond the region.
Significantly, the impact is already evident for airlines regardless of their location, in higher fuel costs. Oil prices have surged in the weeks since the outbreak of hostilities. The potential for this to hit airline profitability is high, given relatively low fuel costs were one of the key drivers of the strong airline profit last year.
