Fuel costs & profit pressures: key takeaways from IATA’s AGM in Rio

Hundreds of aviation executives gathered in Rio de Janeiro, Brazil this week for the International Air Transport Association’s (IATA) annual meeting, where discussions centred on soaring fuel costs, shrinking profits and engine reliability challenges. 

As the conference in Rio de Janeiro drew to a close, reports emerged that Iran and Israel had exchanged strikes for the first time since an April ceasefire. 

For airline leaders already navigating months of disruption following the initial U.S. and Israeli attacks on Iran in February, the latest escalation was another reminder of the uncertainty shaping the industry in 2026.

For now, most carriers are taking a cautious wait-and-see approach, reports suggest. 

Key themes from the event from June 6-8 included:

Profit pressure intensifies

Fuel costs have surged since the outbreak of the Iran conflict, with airlines expected to absorb an additional $100 billion in fuel expenses this year, said IATA.

Combined with airspace closures and weakened travel demand in affected regions, IATA projects global airline profits will be cut nearly in half.

Net profits are forecast to fall from $45 billion in 2025 to $23 billion in 2026, while industry margins decline from 4.2 per cent to just two per cent, said Willie Walsh, outgoing director general of IATA.

Demand remains strong – for now

Despite higher fares, airlines report that travellers continue to book flights.

Executives from carriers including Etihad Airways and United Airlines said demand has remained resilient, helping offset some of the impact of rising operating costs, reports says.

United Airlines CEO Scott Kirby said customers continue to book travel, even though fares are up about 20 per cent and could rise further if fuel costs continue to increase, reports say.

However, industry leaders remain uncertain about how long consumers can absorb higher ticket prices if fuel costs stay elevated.

Aircraft orders remain robust

Manufacturers such as Airbus and Boeing continue to see strong demand for new aircraft, with many popular models sold out well into the next decade.

Airlines are maintaining long-term fleet expansion plans despite economic uncertainty, and some carriers are even looking to expand existing orders.

Financially weaker airlines face greater risk

Industry leaders warned that sustained high fuel prices could force more airlines into financial distress, particularly lower-cost carriers with thinner margins.

The recent collapse of Spirit Airlines was cited as an example of how rising fuel costs can exacerbate existing operational and financial challenges.

Low-cost airlines have been especially vulnerable because they rely heavily on ticket sales and generally lack more profitable revenue sources such as premium-class seating, business travellers, and airline loyalty or credit card programs.

IATA’s Willie Walsh shared his outlook with Reuters at the summit.

“Unfortunately, I think there will be some carriers that will find this high fuel price very difficult to cope with,” Walsh told the outlet, adding he expects some airlines to go out of business and others to be acquired by larger carriers.

Airlines are also likely to defend profitability by eliminating routes that do not generate sufficient returns, he said.

Engine reliability concerns persist

Further compounding the industry's challenges are ongoing delays in aircraft deliveries from Boeing and Airbus, as well as production bottlenecks affecting engines supplied by GE Aerospace and Pratt & Whitney, a subsidiary of RTX.

The setbacks are restricting airlines' ability to grow their fleets and capture operational efficiencies.

Air Canada, as previously reported, is for one facing delays in the delivery of its new Airbus A321XLR jets.

Walsh said airlines are becoming increasingly frustrated with the persistent supply-chain issues, especially as engine manufacturers continue to report healthy profits while carriers face mounting financial pressures.

He estimated that supply-chain disruptions cost the airline industry roughly US$11 billion last year.

“We’re disappointed that they’re not moving faster. We’re disappointed that they’re not sharing the pain that the airline industry is sharing,” he said.

While manufacturers such as GE Aerospace and Rolls-Royce are working to improve reliability and expand repair capacity, carriers say ongoing engine issues continue to disrupt operations and increase costs.

Alexis von Hoensbroech, CEO of WestJet, told CNBC that the new engines promising fuel savings of around 15 per cent or more compared with earlier models were “engineering marvels.”

“However, as you push the limits, it sometimes comes at the cost of reliability, and what we all are seeing is that those engines have to go into unscheduled maintenance far more frequently than prior engine generations,” he said.

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