Global Aviation Round-Up from Aircraft Value Intelligence (AVN)

Editor’s Note: To watch John’s video report that elaborates on these issues, click here: “Fuel Shock Causing Airline Divide.”

Forget the hyperbolic headlines about a supposed “deal” being reached between the United States and Iran. Many industries, especially energy-intensive ones such as aviation, will continue to feel pain. The shooting may stop, but the economic aftershocks are just getting started.

According to the June semiannual report from the International Air Transport Association (IATA), the trade group representing roughly 350 airlines worldwide, the closure of the Strait of Hormuz on Feb. 28 has clobbered the global airline industry. Supply chains have been disrupted, fuel prices have soared, and many routes have been either curtailed or cancelled. Even if the war ended today, the damage would linger for months.

A cease-fire framework announced Sunday by the U.S. and Iran has raised hopes that the months-long conflict in the Persian Gulf could finally wind down. A deal would potentially reopen the crucial Strait of Hormuz, easing pressure on global energy markets and, by extension, global aviation.

However, talk of an imminent deal with Iran has become a recurring feature of these diplomatic talks. The back-and-forth between Washington and Tehran has often resembled Kabuki theater. The emerging agreement would end a costly regional conflict while leaving Iran’s leadership intact and offering Tehran significant economic incentives, including sanctions relief and access to frozen assets. What’s more, key questions surrounding Iran’s nuclear program remain subject to further negotiation.

Whether the agreement is favorable or flawed, and which side ultimately secured the better bargain, is a matter for policymakers and historians to debate. For now, the more immediate question is whether the latest round of negotiations will produce a lasting accord and normalize oil shipments through the Strait of Hormuz.

Regardless, for the airline industry, the damage from the worst energy disruption since the oil shocks of the 1970s is likely to last long after diplomats declare victory.

According to IATA’s June report, airline profitability has gotten squeezed, in an industry where profit margins are typically razor thin even under the best of circumstances.

The disruption temporarily knocked roughly 10 million barrels of crude oil per day off the global market, equal to about one-tenth of the world’s daily consumption. Once refined fuels and liquefied natural gas are factored in, the total impact swelled to an estimated 15 million barrels per day. As traders raced to secure supplies, spot crude prices briefly flirted with the $150-a-barrel mark.

Even if the cease-fire endures and tankers once again move freely through the Strait of Hormuz, the energy system won’t snap back overnight. Months of conflict have tangled supply chains, depleted inventories, disrupted refinery operations, and reshaped trading routes. Getting those pieces back into place could take weeks, if not longer. Just removing mines from the waters will prove a Herculean task.

Airlines have been among the hardest-hit industries. Jet fuel prices have roughly doubled since late February, while refining bottlenecks have compounded the problem.

The IATA report noted that jet fuel crack spreads surged to a record $80/bbl in April, reflecting the growing gap between crude oil costs and refined aviation fuel prices.

The situation is especially concerning because Hormuz-linked shipments account for roughly one-fifth of global seaborne jet fuel trade. As supplies tightened, airlines and fuel buyers in Europe, parts of Asia, and the U.S. West Coast found themselves competing for increasingly scarce fuel.

“The closure of the Strait of Hormuz in February 2026 triggered one of the most severe energy supply shocks in modern history,” IATA wrote in its June report.

Higher Costs, Thinner Margins

IATA expects combined global airline revenues to post a year-over-year increase in 2026 of 9.4%. That’s the silver lining, but here’s the dark cloud: carriers have achieved that revenue increase because they’ve raised fares and cargo rates, which in turn squeezes demand and feeds wholesale and consumer inflation.

At the same time, profits have flown in the opposite direction. IATA projects global airline net profit will fall to $23 billion in 2026, producing a net margin of just 2.0%, down from $45 billion and a 4.2% net margin in 2025. That means industry profits are expected to decline by a whopping 49% year over year.

For most industries, a 2% margin would be considered precarious. For airlines, it underscores how vulnerable the business remains to fuel price spikes and economic slowdowns.

The broader economic outlook is also darkening. IATA’s central forecast calls for global gross domestic product (GDP) growth to slow from about 3% to roughly 2.5% in 2026. Higher energy costs are stoking the inflationary fires and weakening consumer spending.

Global inflation is expected to climb above 5%, increasing the risk of the dreaded “s” word: stagflation, which occurs when prices rise but economic growth stalls. Stagflation brings to mind the Jimmy Carter era, a time of economic misery that rendered Carter a one-term president.

These deleterious economic forces are affecting passenger traffic. To be sure, people haven’t stopped flying, but demand growth is cooling just as the summer travel season gets underway. Ticket prices are higher and consumer confidence is lower. Airlines ate grappling with higher operating costs, airspace restrictions (especially in the Middle East), and longer, less convenient flight routings.

Global passenger traffic is now expected to grow 2.1% this year, a sharp slowdown compared with recent years. The impact is uneven across regions. Middle Eastern carriers continue to face significant pressure from airspace restrictions and disrupted travel patterns, while airlines in Africa and the Asia-Pacific region are benefiting from rerouted traffic flows.

Cargo markets are beginning to soften as well. After a surprisingly strong start to the year, air freight demand is expected to grow by just 0.7% in 2026. At the same time, flight cancellations and schedule reductions have cut into the amount of cargo that can travel in passenger aircraft bellies, keeping capacity tight and helping freight rates stay elevated.

The conflict has also highlighted an uncomfortable reality: despite years of investment in renewable energy and alternative fuels, the global economy still runs largely on oil and gas. Fossil fuels continue to supply more than 80% of the world’s energy needs, leaving industries vulnerable when major supply routes are disrupted.

It’s Not Easy Being Green

My subhead borrows from Kermit the Frog’s famous lament, a nod to how difficult “going green” remains for aviation. Sustainable aviation fuel (SAF) is scarce and expensive.

The IATA report expects global SAF production to reach just 2.4 million tonnes in 2026, enough to cover only about 0.8% of the industry’s jet fuel requirements. To meet aviation’s net-zero goal by 2050, annual production would eventually need to climb to roughly 500 million tonnes, an enormous gap. The net-zero by 2050 goal was adopted by the global airline industry through the IATA.

Energy policy under the Trump regime has pivoted away from green initiatives, but many countries around the world, especially in Europe, are still committed to reducing carbon footprints.

The Iran cease-fire, if it holds, could eventually restore traffic through one of the world’s most critical energy corridors and ease pressure on fuel markets. But airlines shouldn’t expect cheaper fuel overnight. Inventories remain thin and supply networks are still working through months of disruption. The broader economic outlook is becoming increasingly uncertain.

The airline industry’s woes are a problem, of course, for aircraft manufacturing OEMs, e.g. the Boeing-Airbus duopoly. Demand is currently strong for new aircraft, especially fuel-efficient and flexible narrowbodies such as the B737 MAX and A320neo families, but all bets are off if stagflation or outright recession occurs.

For John’s video report that elaborates on these issues, click here: “Fuel Shock Causing Airline Divide.”

John Persinos is the editor-in-chief of Aircraft Value Intelligence.