IATA director general Willie Walsh has warned that global airlines are facing another difficult year, as higher fuel prices, geopolitical instability and aircraft supply chain failures are expected to cut industry profits sharply in 2026.

Speaking at IATA’s 82nd Annual General Meeting, Walsh said the global air transport industry was once again meeting “in challenging and unpredictable times”, adding that airlines had barely moved beyond Covid before being hit by “aerospace supply chain failures, war in Ukraine, geopolitical tensions, and tectonic shifts in trade policies”.

He mentioned that the outbreak of war in the Middle East in March had pushed oil prices higher, causing jet fuel prices to “skyrocket”.

“As a result, we expect average jet fuel prices to be 70 per cent higher year-on-year,” Walsh said, adding that this would add “$100 billion to our collective fuel bill this year”.

At the same time, Walsh explained that demand was still holding up, even as airlines raised fares and rates to absorb the pressure.

However, he said growth would inevitably slow, with passenger traffic expected to rise by 2.1 per cent and cargo by just 0.7 per cent.

“Considering all this we expect profitability to halve from 2025,” Walsh said, adding that “net profits will fall from $45bn to $23bn in 2026, and net margins from 4.2 per cent to 2 per cent”.

Walsh added that this would be “a tough year for all airlines”, particularly those whose balance sheets had not yet recovered from Covid, as well as those operating in the Gulf.

He said IATA polling suggested that 86 per cent of travellers expected fares to track oil prices, while 49 per cent expected to spend more on travel this year than last year. A further 43 per cent, Walsh mentioned, planned to spend the same.

“That bodes well for a strong northern summer peak season,” Walsh said.

Nevertheless, he warned that “the big unknown is how long travelers and shippers can tolerate the higher costs of connectivity”.

Walsh also pointed to the continuing failure of the aerospace supply chain, saying that airlines were being forced to operate fleets that were less efficient than planned because aircraft and engine manufacturers had not delivered as promised.

“The aircraft order backlog is over 18,000,” Walsh said, adding that the average fleet age had reached “a record 15.2 years”.

He explained that airlines were now short of more than 5,000 fuel-efficient replacement aircraft they had expected to receive, resulting in missed efficiency gains, higher lease rates and increased maintenance costs.

“In total, supply chain failures cost airlines at least $11bn in 2025,” Walsh said, adding that “today’s higher fuel prices will only make that worse”.

He was also sharply critical of engine manufacturers, saying that “deeply disappointed customers” had not affected their finances.

“For example, most engine manufacturer profits were up double digits,” Walsh said.

He then added, in one of the strongest remarks of his address, that his message to engine manufacturers was simple.

“Stop gouging us and get back to making great engines that work and that last,” Walsh said, warning that allowing these failures to continue into the next decade was “totally unacceptable to the customers”.

Although he mentioned the extension of an agreement with CFM aimed at bringing more competition into aftermarket services, Walsh said this was “not a magic remedy or even a new solution”.

Still, he explained that greater vigilance over the agreement’s terms could help improve parts availability and maintenance capacity, particularly if other manufacturers followed CFM’s example.

Beyond supply chain issues, Walsh said airlines needed a stronger collective voice, especially when dealing with governments.

He explained that IATA, at the request of its board, was investing significantly to advocate more effectively for its members, including by strengthening its Brussels office and aligning its global team around that priority.

“The aim is to better help our members connect the world more safely, efficiently, and sustainably,” Walsh said.

He added that air connectivity underpinned growth and prosperity, which was why IATA was presenting “a winning proposition for governments”.

Walsh said better policy frameworks and stronger government action were needed in three areas, namely regulation aligned with global standards, infrastructure and decarbonisation policy.

On safety, he said aviation’s strong record showed the importance of global standards.

“With one accident for every 760,000 flights, flying is the safest way to travel,” Walsh said.

He mentioned that nearly five billion people travelled safely on 39 million flights last year, although there were 51 accidents, eight of which were fatal.

“Each was a tragedy,” Walsh said.

Walsh explained that history had shown the way to make aviation even safer, through global standards, industry best practice, data insights and consistent regulation.

“Weaknesses occur when global standards are not applied,” he said.

He then turned to taxation and passenger rights, which he described as two areas where global standards were being ignored to the detriment of connectivity.

On taxation, Walsh said IATA’s position was clear.

“Flying is not a luxury; it’s an essential service and an economic catalyst that grows the tax base,” he said.

He mentioned that this message had gained some traction in Sweden, where what he called an economy-damaging tax was removed last summer.

However, Walsh said Brazil was moving in the opposite direction, with plans to apply 26.5 per cent VAT on tickets.

He said this would add $195 to the average international fare of $740 and could cause up to 3.6 million international journeys to disappear.

“What the government will gain in revenues will pale in comparison to the economic damage caused,” Walsh said.

On passenger rights, Walsh was equally direct, saying airlines could not remain silent in the face of regulations that ignored global standards and passenger priorities.

“EU261 on passenger rights is the poster child of bad regulation,” Walsh said.

He explained that its penalties could far exceed the price of the ticket, which he said was “completely opposite” to the proportionality called for in ICAO’s core principles for passenger rights.

Walsh added that poor drafting, expansively interpreted by the European Court of Justice, punished airlines for things they did not control.

“This approach does not solve problems, but it ties up valuable resources in endless litigations,” Walsh said.

According to Walsh, a sensible European Commission measure to address EU261’s weaknesses had been “hijacked by populist EU Parliament politicking”.

“The proposed deal is so bad that scrapping it and starting over is the better option,” he said.

He added that any restart should begin by listening to travellers.

Walsh said IATA polling showed that 97 per cent of recent air travellers were satisfied with their last airline experience, including 56 per cent who were strongly satisfied.

Although three quarters had experienced a disruption, he explained that passengers valued alternative routings more than penalties.

“Importantly, just over 70 per cent felt that they were treated fairly during disruptions,” Walsh said.

He also said Eurocontrol data showed EU261 was not fixing delays or cancellations, because many of them were linked to air traffic management and infrastructure failures.

“It’s like fining bus drivers to solve roadworks delays,” Walsh said.

He added that reforming EU261 remained necessary for both passengers and airlines, and said that, given its annual cost of €8bn, fixing it would also support Europe’s competitiveness.

Turning to infrastructure, Walsh said governments needed to understand that efficient infrastructure could reduce delays.

“Nearly 400 airports need slot coordination because there is not enough capacity to meet demand at all hours,” Walsh said.

He explained that legacy air traffic management systems were also struggling to handle volumes efficiently, creating delays and adding pressure on productivity and competitiveness.

“Solving the infrastructure problem is a priority,” Walsh said.

He mentioned that some governments were building for growth, pointing to a new hub due to open later this year in Ho Chi Minh, Vietnam, Singapore’s fifth terminal and Sydney’s second airport.

However, Walsh said long-term strategic vision grounded in business reality was “a rare commodity among political decision-makers”.

He then criticised a number of airport policies, including what he called an “exorbitant 82 per cent royalty” in Manila, Lisbon’s “famously poor concession structure”, an “ill-conceived transit fee” in Lima and Mexico City’s reliance on “band aid upgrades” ahead of the World Cup.

Walsh was particularly critical of Heathrow, describing it as “the gift that keeps on giving”.

He said the UK government was “desperate for the growth” that a third runway could deliver, but warned that its haste was not paying enough attention to basic economics.

Walsh added that Heathrow’s shareholders and management were motivated by “its own enrichment”.

“We should be worried,” Walsh said.

Referring to recent comments by Heathrow’s chief executive, Walsh said the airport had made clear that, if real competition were introduced, existing shareholders would refuse to invest.

Walsh quoted the Heathrow CEO as saying that “breaking up the airport will be a red line”, before adding that the same executive had also said, “I wouldn’t put my money in it. I don’t think our shareholders would either”.

“In other words, theoretical competition through weak economic regulation is great and rewarding, but real competition, that’s an outrage,” Walsh said.

He explained that, in the absence of real competition, effective economic regulation was essential, warning that regulatory models which reward airports for the amount they spend were “too easy to game”.

Walsh said Heathrow’s third runway plans offered an opportunity to break from that model, adding that IATA was engaging with the government to develop a new way of regulating airports that created value for consumers, economies, airports and airlines.

On air traffic management, Walsh said Europe’s fragmented inefficiency, decades of under-investment in the United States, conflict-affected airspace and nationalistic thinking were all blocking smarter and more flexible solutions.

“The high cost of fuel makes these frustrations insufferable,” Walsh said.

He added that governments were guilty of “hypocrisy” when they spoke about sustainability and competitiveness while failing to act on meaningful air traffic management reform.

Walsh said that even a modest five per cent efficiency improvement could save airlines $12.5bn annually and cut millions of tonnes of carbon.

“There is no technical constraint on this,” Walsh said.

He explained that modern aircraft already had much of the solution in the cockpit, but that air traffic management systems were unable to take advantage of the precision and flexibility of modern performance.

“Muddling through is not an acceptable strategy,” Walsh said, adding that aircraft were already ready for “more efficient and less polluting operations”.

He also said that high fuel costs had added urgency to the situation, explaining that “the case for change has never been stronger”.

On sustainability, Walsh said aviation’s net-zero target was also under pressure.

He recalled that airlines had committed five years ago to net-zero carbon emissions by 2050, before governments followed under ICAO’s Long Term Aspirational Goal.

He said airports, air navigation service providers, manufacturers and fuel suppliers had all said they would do their part, while some oil companies had committed to net zero by 2050 or sooner.

“None said ‘or later’,” Walsh said, before adding that, “looking at where we are today, the unspoken later may be the truth that unfolds”.

He warned that two fundamental parts of aviation’s net-zero roadmap were now under threat.

“CORSIA is being undermined and SAF production is not growing fast enough,” Walsh said.

On CORSIA, he explained that the scheme had been ground-breaking as the first global sectoral agreement to manage carbon emissions.

However, Walsh said governments had failed to align the parts responsible for aviation and CORSIA with those responsible for the Paris Agreement.

He said airlines would need between 170 million and 236 million Eligible Emissions Units for the first phase of CORSIA, but only 10 countries had so far made such units available.

Together, Walsh added, they had made 38 million units available, which was “far from what’s needed”.

He said the $4bn to $5bn in climate finance at stake should be a strong incentive, adding that the solution was simply to align internal government processes.

Walsh was also sharply critical of the EU’s position, saying the bloc was taking “pot shots” at CORSIA, presumably to favour its own emissions trading system.

“The EU was instrumental in CORSIA,” Walsh said, adding that its current efforts to undermine the scheme “must be called out for what they are, disingenuous and unacceptable”.

On sustainable aviation fuel, Walsh said airlines had sent clear demand signals, with more than 180 purchase agreements signed since 2021.

He added that a SAF registry, matchmaker and accounting principles were already in place to support the development of a global SAF market.

“But where’s the actual SAF?” Walsh said.

He explained that this year’s production would reach 2.4m tonnes, covering just 0.8 per cent of airline fuel needs.

“The goal is 65 per cent or 500m tonnes by 2050,” Walsh said, adding that “the gap is wide and not closing fast enough”.

He mentioned cancelled or downsized SAF projects in Sweden, the Netherlands, Germany, Spain, Denmark, the UK and Singapore, saying that the consequences for climate change and energy security were obvious.

Walsh said promoting SAF in support of sustainability, jobs and energy security should be “a no brainer” for governments.

However, he explained that many governments had relied on mandates before incentives, pushing prices higher without creating sufficient supply.

“In the case of the EU and the UK, the situation is absurd,” Walsh said.

He explained that airlines were paying billions in “compliance add-ons” linked to fuel supplier mandates, even though airlines wanted to buy more SAF than was being produced.

“You could not make this stuff up,” Walsh said.

Walsh also warned that governments, through ICAO, had set a five per cent emissions reduction target through SAF by 2030.

“To be blunt, there is no path to meet that outcome,” Walsh said.

He added that while there was still hope for 2050, that hope was fading quickly.

“We need an urgent dialogue to determine a realistic timeline given the current state of affairs,” Walsh said.

He explained that such a dialogue needed to be action-oriented and should establish who could do what, and by when.

“Maybe the conclusion will be that 2050 is still possible,” Walsh said.

However, he added that “the more likely outcome” would be a new timeline that “hits a sweet spot”, one that is “realistic within the broader context of the global energy transition and sufficiently near-term to meet the urgencies of climate change and energy security”.

Walsh said airlines would do their part as operators, but warned that success would require the aviation value chain and governments to take collective responsibility.

“We’re no longer in the dressing room but on the pitch,” Walsh said, adding that “it’s time for everyone to play their part”.

As he prepares to leave IATA and become chief executive of IndiGo Airlines, Walsh said he remained confident about the future of aviation.

He mentioned that the next five to ten years could be among the most exciting periods for airlines, particularly as artificial intelligence creates new opportunities to improve efficiency, reduce costs and enhance customer service.

“In a few weeks I will leave IATA and become the CEO of one of its members, IndiGo Airlines,” Walsh said.

He thanked IATA’s members, board, board chairs and team for supporting his tenure, before closing with a broader reflection on aviation’s role in the world.

“Aviation changes the lives of over 5bn travelers annually by taking them where they need to be or by bringing them home,” Walsh said.

He added that aviation made $4.1 trillion of trade possible and supported employment for 86.5m women and men around the world.

“While the forces of conflict and division seem to make our world more dangerous day by day, aviation makes the world a better place by bringing people together,” Walsh said, adding that “we offer hope and enable freedom”.