RIO DE JANEIRO — The world’s airlines are heading into what industry leaders describe as one of their toughest financial years since the pandemic, and the recent collapse of Spirit Airlines may only be the beginning.

Speaking at the International Air Transport Association (IATA) Annual General Meeting in Rio de Janeiro, outgoing IATA Director General Willie Walsh warned that more airlines could fail or be forced into mergers as soaring fuel costs squeeze profits across the industry.

IATA now expects global airlines to earn a combined $23 billion in net profit during 2026, roughly half the industry’s $45 billion profit in 2025 and far below the $41 billion forecast the organization issued just six months ago.

The culprit, Walsh said, is fuel.

The conflict that erupted after U.S. and Israeli strikes on Iran in late February disrupted shipping through the Strait of Hormuz, one of the world’s most important energy corridors. The resulting surge in oil prices has dramatically increased costs for airlines worldwide.

IATA now expects jet fuel to average approximately $152 per barrel in 2026, up from about $90 per barrel last year.

That increase adds an estimated $100 billion to airlines’ fuel expenses.

Industry fuel costs are now projected to reach roughly $350 billion, accounting for more than 31% of total airline operating expenses, compared with about 25% last year.

“This is an industry that survives on very thin margins,” Walsh told delegates. “A shock like this has enormous consequences.”

The pressure is already producing casualties.

Spirit Airlines, the Florida-based ultra-low-cost carrier known for rock-bottom fares and extensive add-on fees, ceased operations last month after struggling to manage rising costs and mounting financial pressure.

Walsh said Spirit is unlikely to be the last airline to disappear.

He warned that weaker carriers could either fail outright or become acquisition targets for larger rivals seeking additional market share.

Budget airlines are particularly vulnerable because they depend heavily on ticket sales and often lack alternative revenue streams.

Large network carriers generate substantial income from premium cabins, corporate travel contracts, airport lounges, cargo operations, and loyalty programs tied to credit cards. Those businesses provide valuable buffers during difficult periods.

Ultra-low-cost carriers generally do not enjoy those advantages.

When fuel prices spike, they have fewer tools available to offset the increase.

Walsh stressed that the low-cost airline model itself remains viable, pointing to Europe’s Ryanair as a successful example. The problem, he said, is that fuel costs are rising faster than airlines can pass those increases on to passengers.

Not everyone agrees fuel is entirely to blame.

U.S. Transportation Secretary Sean Duffy recently argued that Spirit’s collapse reflected deeper business problems and called the airline’s failure largely “self-made.”

The reality likely lies somewhere in between.

Spirit entered the fuel-price shock with an already fragile balance sheet, making it less capable of absorbing rising expenses than stronger competitors.

The profit forecasts underscore just how narrow airline margins have become.

IATA expects airlines to earn only about $4.50 per passenger this year.

Walsh noted that the figure demonstrates resilience given the industry’s challenges, but he joked that it would not even buy a hot dog at many sporting events.

The industry’s net profit margin is expected to shrink to approximately 2%, down from 4.2% in 2025.

What makes the situation remarkable is that demand remains surprisingly strong.

Despite higher fares, travelers continue to fly.

IATA projects total airline revenue will rise about 9.4% this year to nearly $1.2 trillion, driven by strong passenger demand.

Passenger revenue alone is expected to reach approximately $839 billion, while average load factors are projected to hit a record 84%, meaning planes are flying fuller than ever.

The problem is that costs are climbing even faster.

Industry operating expenses are expected to rise approximately 13%, wiping out much of the benefit from increased ticket sales.

Adding to the challenge is an aircraft shortage.

Airlines continue to face significant delivery delays from both Boeing and Airbus, while ongoing reliability issues with newer jet engines have left many aircraft grounded for maintenance.

IATA estimates these supply-chain disruptions cost airlines roughly $11 billion during 2025.

The average age of the global airline fleet has climbed to a record 15.2 years, while carriers remain short more than 5,000 fuel-efficient aircraft that could help reduce fuel consumption.

The shortage comes at exactly the wrong time.

Older aircraft burn more fuel, making airlines even more vulnerable when oil prices surge.

For travelers, the implications are straightforward.

Higher fuel costs generally mean higher ticket prices.

Airlines are also likely to reduce service on marginal routes, leading to fewer flight options in some markets.

And if additional budget carriers disappear through bankruptcy or consolidation, competition could weaken further, reducing pressure on airlines to keep fares low.

This year’s gathering also carried special significance for Walsh personally.

After leading IATA through the pandemic recovery and one of the most turbulent periods in aviation history, he is preparing to step down and take a leadership role at IndiGo, India’s largest airline.

His farewell message to the industry was direct.

The airlines with strong balance sheets, efficient operations, and financial flexibility will likely survive the turbulence ahead.

Those without a cushion may not.

As airlines enter the busy summer travel season, the industry’s challenge is no longer finding passengers.

It is finding a way to stay profitable while fuel prices remain stubbornly high.

JBizNews Desk — Aviation

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