Airlines remain profitable, but war-related disruptions and fuel price volatility are clouding the recovery outlook.
Dubai: The global aviation industry entered 2026 expecting a year of expansion after several turbulent years following the 2020 Covid-19 pandemic.
Instead, airlines are now entering a prolonged period of disruption. Experts say Middle East carriers are facing the strongest pressures as geopolitical instability, fuel price volatility, and airspace constraints reshape the sector’s recovery trajectory.
For both passengers and airlines, the coming months are expected to bring a more fragile operating environment—not due to weakening demand, but because the infrastructure supporting global air travel is coming under increasing strain.
“Aviation as the patient is walking, but the storm has changed the forecast,” said Linus Benjamin Bauer, Founder & Global Managing Partner of BAA and Partners, describing an industry that had largely moved beyond the pandemic recovery phase before fresh conflict disrupted momentum.
“Structurally recovered, geopolitically stress-tested. Going into 2026, the industry had effectively declared victory over COVID-19—on track to carry over 5 billion passengers and generate revenues exceeding $1.05 trillion. Then February 28th happened,” Bauer said.
Over 20,000 flights were grounded, and more than a million people were stranded worldwide. The demand engine remains intact, but the route architecture is under strain. “I would call this ‘recovery interrupted’,” he explained.
Middle East faces hardest near-term test
Analysts say the Middle East remains one of aviation’s strongest long-term growth markets, but is now also among the most exposed to near-term shocks.
Before the latest regional conflict, Middle East airlines were forecast to record the world’s highest profitability margins in 2026, with IATA projecting net margins of 9.3 per cent and profit per passenger of $28.60. “Nearly 780 aircraft on order. A $35 billion airport expansion in Dubai,” said Bauer.
That outlook is now under pressure.
“The Middle East aviation sector is entering a defining phase, where strong financial performance and rapid expansion are being matched by a more complex and dynamic risk landscape,” said Abhishek Jain, CEO of EIRS.
He warned that oil price volatility has pushed up jet fuel costs, while rerouting around conflict zones is increasing flight times and raising operational expenses.
“With geopolitical tensions continuing to alter flight routes, war-risk premiums have also risen significantly, adding substantial cost per flight hour,” Jain said.
Saj Ahmad, chief analyst at Strategic Aero Research, gave a blunt outlook for the year ahead.
“Until the conflict with Iran ends permanently, it’s fair to say 2026 will be a bad year. High fuel costs, economic pressure, derailed flight schedules and cancellations — it’s a terrible mix of bad fortunes for airlines and passengers alike,” Ahmad said.
Recovery no longer about Covid
The pandemic recovery cycle is effectively over, according to Sergey Glinyanov, senior analyst at Freedom Broker, who said the industry is now in an expansion phase, but geopolitical instability has replaced COVID-19 as the main risk factor.
“In 2026, the aviation industry is operating at traffic levels that have already exceeded pre-Covid volumes since 2024. The recovery phase is essentially over, and the sector has moved into an expansion stage.”
What has changed is the nature of disruption.
Bauer said that unlike COVID-19, which caused a collapse in passenger demand, the current crisis is primarily a supply-and-routing issue.
“COVID was a demand shock—nobody could fly. The Iran war is a supply-and-routing shock—the planes exist, but the airspace doesn’t,” he said.
That distinction matters because even when passenger demand remains strong, airlines cannot quickly restore schedules if routes remain blocked or politically unstable.
Expect network reshaping in coming months
Rather than a broad collapse in aviation activity, analysts expect the coming months to bring network reshaping, with airlines redirecting aircraft, trimming weaker routes, and prioritising more profitable long-haul corridors.
Glinyanov said Gulf carriers, including Emirates, Qatar Airways, and Etihad, are likely to recover the fastest once tensions ease, given their hub-based models built around transfer traffic.
However, until then, disruptions are expected to weigh more heavily on Gulf airlines.
“Connecting flights play a crucial role for these operators, so any disruption to regional connectivity or airspace access has a disproportionate impact on their performance,” he said.
Ahmad added that the biggest immediate bottleneck is predictability.
“Airplanes on the ground cost millions. They make money when in the air, so airlines need assurance that if the war ends, it does not flare up again,” he said.
Aircraft shortages, supply chain strain
Even if geopolitical tensions ease, airlines face another structural challenge: too few aircraft being delivered too late.
Bauer said aircraft delivery shortfalls now total at least 5,300 planes globally, with a backlog of around 17,000 aircraft.
“This mismatch isn’t expected to normalise before 2031–2034,” he said. He added that the workforce crisis is equally severe, noting the industry will need 710,000 new maintenance technicians over the next 20 years, with around 80% of the current workforce expected to retire.
This shortage is forcing carriers to keep older, less fuel-efficient aircraft in service, increasing costs at a time when jet fuel prices are already rising.
Glinyanov echoed this concern, noting that delays in aircraft and engine deliveries continue to limit fleet renewal and expansion.
Profitability will survive, but margins are thinning
Despite ongoing turbulence, analysts do not expect a collapse in global airline profitability. However, margins are becoming thinner and more unevenly distributed.
Bauer said the industry’s earlier projection of a record $41 billion profit in 2026 is now increasingly uncertain.
“I believe the industry will remain profitable, but the record may slip. My metaphor: a diamond under pressure—strong, but not indestructible,” he said.
Ahmad expects US and European carriers to weather the turbulence better than Gulf airlines.
“Profitability will likely be the domain of US and European carriers, while GCC airlines will be hit harder due to the conflict on their doorstep,” he said.
Long-term growth story remains intact
Despite short-term volatility, the region’s long-term aviation fundamentals remain strong.
Passenger traffic across the Middle East is still projected to reach 530 million by 2043 if stability returns—nearly double current levels, according to EIRS estimates.
Jain said the sector’s future growth will depend less on demand alone and more on resilience planning.
“Demand alone will not drive the next phase of growth in Middle East aviation. This will be anchored on how effectively the industry anticipates, prices, and manages risk in an increasingly uncertain environment,” he explained.
For now, the coming months are expected to be less about rapid recovery and more about endurance—airlines maintaining flexibility, protecting margins, and waiting for geopolitical conditions to stabilise.
