Asia-Pacific aviation bucks global slowdown as airline profits slide

[Photo: Nadia Shaw]

The global airline industry is expected to remain profitable in 2026, but rising fuel costs, geopolitical disruptions and aircraft shortages are threatening to weaken its post-pandemic recovery. The International Air Transport Association (IATA) forecasts that airlines worldwide will record combined net profits of USD23 billion this year, down from an estimated $45 billion in 2025.

As a result, the industry’s net profit margin is projected to fall from 4.2% last year to just 2%, despite expected revenues of approximately $1.165 trillion.

Erik Chan, IATA’s area manager for Hong Kong and Macau, presented the figures during a France Macau Chamber of Commerce (FMCC)Breakfast Talk Rendez-Vous last week and offered his perspective.

Chan has more than 15 years of experience working with international carriers, including Cathay Pacific and Qatar Airways.

IATA represents more than 370 airlines, accounting for approximately 85% of global air traffic.

Growth slows as costs rise

Despite the increasingly challenging financial outlook this year, Chan said passenger demand remained resilient. “Luckily in our region in Asia Pacific, we can see that […] in this region that the prices goes up and still demand is strong,” he said.

Regional growth, however, is expected to remain uneven, he added.

Asia-Pacific is forecast to lead, with passenger traffic increasing by about 5%, while North America grows by less than 1%.

Meanwhile, the Middle East has suffered the most severe contraction. That regional outlook has since been affected by higher fuel prices and disruptions linked to the conflict in the Middle East.

There, passenger load factors fell from 80.8% to 77.2% by April as airspace restrictions and rerouted flights disrupted established networks.

Even so, Chan said the disruption had shifted traffic rather than eliminated it.

Chan detailed that Middle Eastern carriers’ share of certain Asia-Europe transfer markets had fallen from 26% to 13%, while Asian and European airlines captured much of the displaced demand.

“Traffic still grows,” Chan said. “What changed is the cost of flying people […] This is what a network does: block one path, and the flow finds another,” he said.

That rerouting, however, comes at a steep price.

Chan said rising costs were being driven largely by fuel, citing jet fuel prices of about $152 a barrel and noting that every additional hour in the air adds significantly to airline expenses. Moreover, fuel is expected to account for roughly 31% of airline operating costs in 2026, up from 25% the previous year.

On passenger fares, prices are expected to climb by nearly 8%, according to the IATA figures.

Aircraft shortages limit expansion

Also hindering airline growth is the shortage of new aircraft. Carriers are struggling to expand because manufacturers cannot deliver planes quickly enough.

Chan said the gap between expected deliveries and the pre-pandemic trend has reached about 5,600 aircraft, while the global order backlog represents roughly 12 years of production at the current pace.

This shortage is limiting airlines’ ability to add routes, replace older aircraft and reduce fuel consumption. The impact is particularly significant in Asia-Pacific, where domestic travel has become a major driver of global growth, Chan highlighted.

To illustrate the shift, Chan presented figures showing that the United States accounted for roughly two-thirds of the world’s domestic air travel in 2000, while China represented about 6%. Today, the U.S. share is slightly above one-third, China’s is close to 29% and India’s has risen from about 1% to 5%.

“With just only 25 years that’s passed […] you can see the gigantic power of China is happening; within the China domestic line is growing a lot, and the emerging sectors from India is also happening around the globe. That is one of the largest structural shifts in the industry’s history, and it took only 25 years,” Chan remarked.

And that transformation is likely to continue.

IATA projects that global passenger demand will more than double by 2050 – rising from about 9 trillion revenue passenger kilometers (RPK) in 2024 to between 19.5 trillion and 21.9 trillion, depending on the growth scenario.

Meanwhile, air cargo growth has slowed to about 0.7% in 2026, from an earlier forecast of 2.1%.

Yet, cargo yields are rising because the loss of passenger flights has removed valuable belly-hold capacity.

Cargo demand remains selective

“Most air power does not fly on freighters. It travels in the belly of passenger aircraft […] the Gulf carriers fly very large, wide-body fleets on exactly the routes where the belly space matters most,” Chan said, adding, “When the passenger shadow stopped, about 30% of the world’s cargo capacity stopped with them.”

“So, this is a supply cut, not a demand cut.”

Chan then shifted to trade in artificial intelligence-related goods – including servers, chips and other components. He said that these products are generating significant demand in his industry.

Chan also said the value of that trade had increased from about $2 trillion in 2015 to nearly $4 trillion today.

AI-related goods account for only about 7% of air cargo by weight, but they represent more than half of its value, Chan said.

“More than two thirds of it moves by air. So now, reverse that view by weight. […] a small number of light, expensive boxes now account for most of the value that holds,” adding that, “These economics are simple.”

Net zero depends on fuel

The end of the session examined the aviation industry’s path toward net-zero emissions by 2050. Chan said IATA is promoting sustainable aviation fuel, or SAF, produced from sources including used cooking oil and other alternative feedstocks.

SAF currently represents less than 1% of global aviation fuel use. IATA expects production to reach about 2.4 million tons in 2026, equivalent to only 0.8% of total aviation fuel consumption.

Chan said that Hong Kong has a target of 1% to 2% SAF use over the next three years, while Singapore is pursuing a target of about 10% within five years.

Chan also said the Hong Kong government is working with mainland authorities on a proposed SAF production facility in the Greater Bay Area.

However, SAF remains substantially more expensive than conventional jet fuel and currently can be blended at levels of up to 50% in commercial aircraft.

Moreover, current market tracking shows that SAF generally costs between 2 and 5 times more than fossil jet fuel. In some mandated European and Asian markets, the premium pushes SAF prices as high as $2,830–$2,872 per metric ton, whereas conventional jet fuel averages closer to $1,400 per ton.

Whether SAF is a viable way forward depends on how the aviation sector scales up production, manages costs, and navigates policy requirements. The transition remains at an early stage.