Hi there, and welcome to Flight Global Focus, a podcast from
Flight Global offering insight and analysis into the world of
aviation. My name is Alfred Chua, the Asia
Airlines editor at Flight Global.
And joining me this week is Flight Global's Head of
Airlines, Louis Harper. Hi, Louis.
Hi, Alfred, good to talk to you. This week, we're going to be
discussing what lies ahead for the global airline industry in
2026. Now last year, we saw the
industry show a degree of resilience against the number of
headwinds, helped along by lower fuel costs.
And then IATA also forecast in December that 2026 will see the
global industry achieve its highest ever profit.
But the first couple of weeks this year have provided a stark
reminder of some of the geopolitical challenges that
could escalate across the coming 12 months.
Now, Louis, it's been quite an eventful start to the year,
hasn't it? It certainly has, yeah.
We're at the midpoint of January and it already feels like we've
had a few months worth of geopolitical developments in
2026, that's for sure. We know the global airline
industry is particularly vulnerable to outside factors,
but also, you know, many stakeholders will say it's been
adapting well to absorbing the impacts of geopolitical
developments in in recent times That will clearly be tested
again in 2026. I think that much is clear.
So I'm speaking on the the 15th of January.
And it is also the case that while geopolitical tensions have
risen so notably in the Middle East, we've seen a lot going on
in Iran between NATO allies in what could be a big change to
the world order, and in Latin America with the US as actions
in Venezuela. I'd say despite all that, the
global economy is not in bad shape so far.
So it is showing it's own resilience in the face of
geopolitical uncertainties. And we know that airline growth
tends to track GDP trends. We also know that low fuel costs
are a game changer for airlines. And so far in 2026, despite
geopolitical developments, oil prices are still trending
favourably for airlines. I mean, that said, there is
clearly a tipping point where geopolitical developments begin
to have a significant economic impact and potentially a more
direct impact on airlines in terms of airspace restrictions,
more markets becoming out of bounds, demand impacts, that
kind of thing. But for now, while it's
obviously a case that the red lights are flashing for airlines
when it comes to assessing whether outside risks awaited to
the downside or upside, I think there is still room for some
optimism about the 12 months ahead.
And not least because as we've talked about 2025 providing more
evidence that people are prioritising air travel over
other expenditure and in terms of real life examples of that
playing out, the first major airline to report it's fourth
quarter earnings in January is as ever, Delta Airlines in the
USA. And they were pretty upbeat
about the outlook for this year. So it's forecasting 5 to 7% year
on year revenue growth in the first quarter.
It cites a more balanced supply demand environment in the US
following last year's pretty significant capacity cuts in
some cases, and it anticipates full year capacity growth of
about 3% after a lacklustre year for growth in 2025.
Of course, Delta possibly isn't the best bellwether for what's
going on in the wider US sector, given the divergent in
performances among the country's airlines in recent years.
And elsewhere, we've also had Korean Air report its Q4
earnings already in 2026 and its outlook for the year and
slightly more downbeat. I think it cites a weak local
currency, softening outbound demand, increased global
volatility and slowing economic growth at a global level as well
and saying it needs to be more agile in 2026 to to deal with
those factors. So another sort of less positive
side of the coin there. OK.
And I think as we get through earnings season, I think we'll
kind of see a bit more of this kind of commentary.
We can kind of get a clearer picture of what airlines think
2026 will shape up to be like On the topic of supply and demand
balance, Airlines are still operating with the, you know,
constrained capacity in many markets.
Is that right, Lewis? Absolutely.
So we're just talking about delta.
The US short haul market is perhaps a bit of an outlier in
terms of having experienced excess capacity in the post
COVID period. At the IATA global media day in
December, Director General Willie Walsh again said that the
the member airline chief executives continue to be
incredibly frustrated by the supply chain challenges that
mean they are not getting new aircraft quickly enough and that
it's tough to keep their current aircraft in the air.
From everything I've heard, we're we're not going to see a
material improvement in that situation this year.
There might be pockets of better news, but I think a lesson from
2025 was that for every step forward in the supply chain
challenge, there tended to be a step back.
For example, you know, there were airlines that were more
optimistic about an improving situation with their groundings
caused by engines inspections earlier in 2025.
And some were often disappointed later in the year when things
hadn't improved quite as much as they'd hoped.
One positive thing to talk about I think is that Boeing's
improvements are continuing. Lots of CE OS talked about a
really noticeable turn around from the airframer in 2025.
So that's a positive. But there's so much ground to
make up there that this remains a years long challenge.
We also know that supply chain challenges are a double edged
sword for airlines. In a previous podcast, I talked
about how the passenger traffic achieved globally by airlines in
2024 was about the same level that would have been achieved in
2020 absent the global pandemic. And I think that quite starkly
reflects the reality in the industry where according to
IATA, it's about 5000 aircraft deliveries short of where it
would have been without the supply chain challenges seen in
recent years. And a consequence of that, that
we've talked about before is that in many markets, capacity
is tight and that's helping to support yields.
So that's good for incumbent carriers and does help to shield
the industry for some of the headwinds it has faced in the
post COVID period. When we talk about that
resilience, I think it needs to be framed, framed within that.
And it's a real reason why load factors globally are are so high
at the moment. But obviously on the other side
of the equation, airlines are incurring costs by having to
keep older aircraft for longer, and not least because they
usually use more fuel. And because the supply chain
challenges are creating uncertainty around planning,
which means they're having to spend more on spare parts, spare
engines and spare aircraft. And they're also tapping the wet
lease market more often than they would like to.
And that can be expensive. So supply chain challenges,
definitely a headache for airlines.
Don't expect to huge improvement this year.
It does have some positive consequences at the same time.
So I think it may be more of the same this year on that issue.
Right. And you know, keeping older
aircraft for longer, this kind of brings to mind as well the
issue of sustainability. Now the older aircraft are
making emissions targets harder to achieve.
Talking about sustainability, do you think that we'll see kind of
a breakthrough in terms of sustainability or you know,
among the airline sector this year?
I think it that seems unlikely at this point.
We know the political backdrop to net zero has shifted in the
past year or so with the rise of populist government.
Some, you know, including in the USA, who are sometimes outright
denying the the climate science. You know, some momentum for
change in wider societies has been lost, undoubtedly.
Now is that a kind of get out of gaol free card for the airline
industry? I don't think so.
And I, I don't think anyone, anyone sensible would would
either, you know, any stakeholders who, who do
understand the science will presumably want the industry to
be on the right side of history. And we know the political wind
can change quite quickly as well.
So if we look at sustainable aviation fuel, which obviously
remains the key driver towards net zero for the airline sector,
progress continues to be slow. There's not yet any sign of the
breakthrough towards the kind of exponential growth in production
that some people predicted is likely to occur at some point.
Putting some numbers on it, at it's annual media day in
December, IRTA said that SAF output would reach 1.9 million
tonnes in 2025, almost double the 1,000,000 tonnes produced in
2024. However, this year the rate of
growth is projected to slow, which is obviously not a good
sign when we we look towards that kind of exponential growth.
So output this year, IRTA is forecasting would be around
500,000 tonnes, up year on year at 2.4 million tonnes.
IRTA also points out that SAF production in 2025 represented
only nought .6% of total fuel consumption of airlines.
In 26, the figure is expected to reach nought .8%.
And it it cites as ever the slow take up being a a consequence of
the high price of SAF and the lack of policy support for its
production. For example, his figures show
that, you know, SAF prices exceed fossil based fuel by a
factor of 2 and up to five in the markets where it's mandated.
So you can really see that the cost difference there and we, we
know fuel is a huge cost for airlines at the best of times.
IASA continues to lament the European Union's approach of
mandating SAF usage, saying that that just forces prices up and
it prefers a carrot rather than a stick approach as you would
expect an airline association to.
I guess I think in that regard is is interesting and worth
keeping an eye on China in 2026. Regarding SAF, I do feel like
the tables have turned a bit and it feels like we might see more
momentum on South from that country.
The USA was in the spotlight under the Biden administration,
in particular the IRA programme and the incentives that created
for producers. But it feels like today there
are more positive noises coming from China on the issue, and
that obviously matters greatly because of the size of its
market and the power it has on the world stage.
Yes, and amid these uncertainties, can airlines
still bank on passenger demand holding up well this year?
Yes. So 2025 felt like the year of
the premium cabin in some respects.
We know that in many cases network carriers have managed to
offset softness in the main cabin sort of on the
transatlantic for example, with buoyant sales in the premium
cabins. Not in every case, but in, you
know, with a lot of the big players that that has been the
trend. Will that continue in 2026?
Quite possibly. There are certainly a lot of
airlines banking on that, not least because they're investing
in expanding and improving their products.
The premium leisure market in particular has become really
important. And ultimately, again,
referencing that lack of capacity is likely to mean that
airlines can still extract a lot of value from that sector in
2026. I would say there are likely
plenty of people who travel in economy who will be hoping for
the year of the economy cabin at some point.
I I think it's fair to say it's sometimes a neglected part of
the product offering. In many cases it doesn't look
drastically different from the offering 20 years ago.
In fact, you could argue the changes have made since then
have made the experience worse, including cramming more seats
in. But maybe that's a discussion
for another another podcast. I mean, broadly, I would go back
to my comments regarding geopolitics and the economic
outlook. We definitely live in a riskier
world today, yeah, where it would not take much for consumer
sentiment to dip enough for airlines to notice a significant
softening in demand. But let's hope that's not the
case in the coming 12 months. Yeah.
And you know if if that doesn't come to pass, IATA reckons 2026
will see the airline industry achieve a record profit, right?
Yeah, In December, IATA's message on the airline
industry's health going into 2026 was a relatively +1.
It expects the industry to achieve its highest ever profits
this year. As you say, European carriers
have overtaken North American operators as the biggest
contributors to that total is forecasting a an industry net
profit of $41 billion in 2026, up from a forecast of 39.5
billion in 2025. And and that forecast for 2025
that it made in December, obviously we're still waiting on
Q4 results. That's why it's still forecast
in 2025. That was actually an upgrade on
on the the forecast it made in June by $3.5 billion for 2025.
It's seen a surprise strong performance from air cargo and a
weaker U.S. dollar, which lowers costs for many airlines,
obviously helping on the on the bottom lines there.
So a kind of a a positive story there on the the cold hard
figures. Obviously that within that
there's lots of different experiences for airlines, but
but a positive trend nevertheless.
I think an interesting piece of context is you can you can look
at a single big energy producer who might have been making
profits sort of in the 30 billion, 40 billion zone on
their own in 2024. So yeah, when airlines say that
it's unfair to burden them with the costs of the SAF transition,
I think there's a reasonable point they can make around,
yeah, the entire industry only achieving a profit around the
level that one energy producer might expect.
Back to the the airlines themselves, as mentioned
European carriers will contribute 14 billion of of
global airline net profit in 26 IRTA is forecasting and that's
versus 11.3 billion from North American carriers.
European carriers were also ahead in IATA's forecast for
2025 at 13.2 billion versus 10.8 respectively.
That represents a shift from trends pre 2025 when North
American carriers tended to be the profit leaders, a topic we
talked about before. Walsh and IATA really keen to
highlight the tight margins that airlines experience.
And I go back to the point I made about energy producers.
Yeah, with the forecast 2026 global net profit equating to a
Net margin of 3.9%, which would be below the pre COVID high of
5%. And there's a big dichotomy of
performance by region as well when you get into the margins.
So they use a per passenger figure and there's some really
stark differences. So you look at the Middle
Eastern carriers in the forecast, their profit per
passenger in 26 is forecast at 28.6 dollars.
That's versus 10.9 dollars in Europe and 9.8 in North America.
And at the other end of the range, African carriers are
expected to achieve a profit per passenger of just one point $3.
And it creates a global average of 7.9 dollars, which would be
roughly flat year on year. And to give it a bit more
context, IATA likes to point out that that kind of seven point $9
figure isn't much more than you you would pay for a cup of
coffee I think in plenty of places in the world today.
So a good sort of headline figure in terms of
profitability. But when you look under the
bonnet as it were, there's plenty of tight margins and
challenges potentially when we talk about how geopolitics might
affect demand etcetera. And that's when those those
tight margins might get exposed. And you know, sort of just
staying within the topic of of the different regions in the
world, you know, what are some of the talking points in some of
these big airline regions that you're?
Looking at, yeah, I think in in North America eyes will be on
the the low cost sector in the the USI think we know Spirit
Airlines going through it's 2nd Chapter 11 proceedings and the
fortunes of other operators in, in that, that that area of the
market will be really keenly watched as well as they all
continue to adjust to that tough operating backdrop.
Obviously already 2026 has given us a really interesting
development in that sector with Allegiant moving to buy some
country and that's a piece of news I'm sure will cover in more
depth on another podcast. As mentioned earlier, I think
network giants Delta and United have a noted kind of financial
divergent in their performance versus that of other carriers in
the USA. And it will be really
interesting to see if that continues this year.
And I think at the moment bets would be that it most likely
will even if there is some improvements from from some of
their peers. I think there will also be
scrutiny of US tourism data amid some signs of weakening demand
for travel to the country, not least since the administration
of President Donald Trump began to issue travel bans talked
about scrutiny of social media postings for visitors.
And I think in the last 24 hours or so, there was also block on
on working visas from dozens of countries as well.
So I think the the US government's ramping up a
rhetoric against it's nearest neighbours, Canada and Mexico is
also not obviously creating the best environment for encouraging
travel and trade between them. And I think, yeah, broadly, we
all know that anything that makes travel more difficult or
gives people pause for thought before travelling is, is bad
news for airlines. So, so that's a trend to keep a
close eye on. Obviously as I talked about
earlier, it didn't seem to be overly concerning Delta and its
outlook for the year, but certainly it can't be ignored as
a potential headwind in Europe and as I said, which is forecast
to be the leading global profit generator in 25 and 26.
I think consolidation is a key theme as we move through the
shrinking number of mid sized national airlines who aren't yet
part of one of the big three airline groups.
TAP Air Portugal will be among the focus carriers in in that
regard and who knows we might even see some movement in the
low cost sphere. I think that'll be interesting
to watch as there are a few sort of medium big size players there
and stakeholders do see that as carrying potential for
consolidation. I think towards the end of last
year, Turkish carriers, so Turkish Airlines and Pegasus
were significant movers in European consolidation with our
Europa and Smart Wings respectively.
So that that's the theme to watch in 2026, what they're
going to do with those beyond consolidation.
I think the performance of the key transatlantic market will be
closely watch by year. It's big airline groups amid the
geopolitical turmoil we've been seeing.
And I'm looking forward to hearing from, you know,
Lufthansa, Air France, KLM and IAG on on how that's going when
they report their earnings in the coming weeks.
In Asia Pacific, India's biggest carriers will be aiming for
better headlines. I think in in 20262025 saw
various challenges at, you know, the biggest carrier Indigo,
including an operational meltdown towards the end of the
year. Obviously there was the crash of
the Air India Boeing 787, which happened not long after Delhi
had hosted the IR to AGM in June.
And I think that that that crash was clearly one of the darkest
moments of 2025 for the global industry.
Reports in early 2026 suggests that Air India might be looking
for a new chief executive as it seeks a a kind of leadership
reset. So I think it's fair to say
there's some stories to play out there before before India is
back on track. China's big carriers as well
will be hoping for a better year financially.
I think there were some signs things were improving in that
regard towards the end of 2025. They've kind of been outliers
from, from when you look at the biggest airline groups globally,
how they've been performing financially, the the Air China,
China East and China Southern to various degrees kind of stand
out in, in terms of the, the weakness of the profits.
They've been reporting, you know, amid A tricky emergence
from the, the COVID-19 crisis in financial terms.
But you know some better signs there, and we'll be keeping a
close eye on that this year. In Latin America, we'll
obviously we'll be looking closely at Brazil's market, not
least because the IR to AGM is due to be held in in Rio in
June. We've got Azul's emergence from
Chapter 11 to come. Any consolidation moves that
might develop as a result of that or or elsewhere in the
region. Obviously Abra Group growing and
in Sky Airline last year. So lots of interesting stuff
going on in that region. When we broaden out to look at
the Caribbean as well. I think our eyes will be on the
airspace and demand implications if if there's any further
military activity from the USA after it's moves in Venezuela
earlier this year. In the Middle East, there's
obviously so much going on. We reported from the the Dubai
Air show, busiest show I've ever seen in terms of just people on
the ground, but also you know lots of big orders focused on on
the region's airlines there. We know that Saudi Arabia is
kind of probably one of the the biggest focuses for for airline
growth in terms of, you know, existing carriers adding
aircraft and you know, start up carriers really trying to drive
tourism into that market and potentially creating a more hub
activity in competition to the the the big hub players in that
region. We know Emirates continues to be
pretty formidable. It's the the biggest profit
generator I think of any airline globally.
Well, it was in 2024 anywhere and I'm sure it looked to be on
tracking 25 as well. So, yeah, the Middle East is a
big engine of growth. But obviously, as we've touched
on a bit in this episode, the geopolitical challenges in the
region always kind of of hangover that when the airline's
looking at at risks and bit of an inauspicious start in that
regard to 2026. So we'll be keeping a close eye
on things there. Finally, in Africa, we've got
familiar challenges at the biggest operators.
It's not a market for the faint hearteds and that continues to
be the case. In terms of specific stories
we'll be keeping an eye on, we've seen a recent leadership
transition at Kenya Airways and that'll be an interesting one to
watch with what happens at that carrier in particular.
I clearly can't cover everything that's that's going on, but I
think those are some of the highlights and it's fair to say
there's plenty for us to follow over the coming 12 months.
Yep, that's plenty of things to look out for in the coming 12
months. Thank you so much for your
insights, Lewis. No problem, Alfred.
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