For an industry once defined by chronic losses, airline profitability is looking up. In 2026, according to the IATA, airlines are expected to deliver a record combined net profit of $41bn, on record revenue of more than $1trn for the first time.
Yet beneath the surface, a more uncomfortable question hangs over the industry as it enters 2026: will airlines ever be able to create genuine value — or are they merely delivering profits that fail to justify the capital they consume?
Though profitability now seems inevitable, margins remain razor-thin. In 2026, IATA expects net margins to be unchanged at 3.9%. It also expects airlines to earn an average of $7.90 per passenger carried, which would be below the 2023 peak and unchanged from 2025.
The challenge of delivering value creation over profitability is likely to become a growing concern among airlines, as the post-pandemic recovery narrative comes to an end.
In 2026, according to the IATA, return on invested capital (ROIC) across the airline industry is forecast at 6.8%, unchanged from 2025 and still well below the estimated weighted average cost of capital of 8.2%.
As IATA Director General Willie Walsh has repeatedly warned, an industry that generates accounting profits but fails to cover its cost of capital remains, in economic terms, broken.
Profit without value
Walsh’s critique cuts to the heart of aviation’s profitability paradox. Airlines sit at the centre of a value chain that underpins nearly 4% of global GDP and supports some 87 million jobs, yet they capture only a fraction of the economic value they enable.
“Industry-level margins are still a pittance considering the value that airlines create,” Walsh said earlier this month, noting that Apple earns more selling an iPhone cover than airlines make carrying the average passenger.
The post-pandemic period briefly appeared to challenge that orthodoxy, as capacity constraints, pricing power, and resilient premium demand delivered margins that few would have predicted back in 2020.
But by 2026, those recovery dynamics have largely played out. What remains is the underlying economic model — and that model remains deeply capital-intensive.
Aircraft ownership and leasing costs, pre-delivery payments, engine reserves, MRO spend, and infrastructure commitments rarely feature in headline profit figures, yet they define the capital hurdle that airlines must clear, and despite deleveraging and stronger operating performance, the industry as a whole still falls short.
A cost base reset higher
One reason the profit versus value test is currently so unforgiving is that costs have not merely risen since the pandemic era, they have been structurally reset higher.
Aircraft and engine availability remain severely constrained, with the global order backlog now exceeding 17,000 aircraft, according to the IATA. This is the equivalent of 60% of the current active fleet or roughly 12 years of production at current capacity.
Delivery shortfalls have also accumulated to more than 5,300 aircraft, while the average fleet age has risen above 15 years.
Morningstar DBRS expects this imbalance to persist into 2026. “Although Airbus and Boeing production rates are improving, new aircraft deliveries are not sufficient to meet demand,” it said in its 2026 leasing outlook.
“Additionally, ongoing issues with some newer technology engines are contributing to longer shop visits and grounding of the newer tech aircraft — both factors driving strong demand for existing in-fleet older aircraft across the industry.
“We expect these trends will continue in 2026, underpinning both higher lease rates and aircraft values.”
Labour is another area where scarcity and coordination challenges have translated into higher costs and limited productivity gains for airlines.
Across most regions, demand for pilots continues to exceed supply, and the shortage of air traffic controllers continues to result in operational disruption, particularly in Europe.
On the plus-side, airlines have responded well to these challenges from a revenue perspective, as noted by Augusto Ponte, director at Alton Aviation Consultancy.
“Almost all costs other than fuel have been growing at a higher rate than inflation,” said Ponte. “That is a massive challenge — yet the industry has been quite efficient in achieving higher yields, so you have a story of revenue growing faster than costs.”
Airlines’ success at responding to these challenges can also be seen in load factors, which are also at record highs, but this leaves limited headroom for further revenue growth.
“Globally, load factors are already around 84-85%,” said Ponte. “In markets like Europe and the US, you’re structurally close to 90%, which makes further revenue stretching very difficult. At some point, the ability to pass rising costs on to passengers reaches its limit.”
One industry, diverging regional realities
On the whole, airlines have adapted primarily by focusing on unit revenue growth rather than relying on cost reduction alone, but the results vary depending on the region.
Dan Taylor, head of consulting at IBA, notes that Europe, despite its association with overregulation and staffing issues, has been the strongest performer in 2025.
“Constrained capacity and resilient leisure demand have allowed carriers to raise fares and increase total trip spend, with IBA analysis showing clear RASK improvement across major low-cost carriers, supported by high load factors and disciplined capacity deployment,” he said.
“Some airlines, such as easyJet, have further enhanced revenues through ancillary growth and vertically integrated holiday offerings.”
In the US, low-cost and hybrid carriers have shifted their propositions towards greater product segmentation, including paid seating, bundled fares, and expanded loyalty programmes to improve yields.
“Together, these strategies have allowed airlines to offset sustained cost inflation and supply chain pressures, albeit with margins that remain structurally thin,” said Taylor.
US airlines enter 2026 with strong balance sheets and a clear emphasis on capital discipline, but growth in this key market is decelerating.
While the Big Three have seen strong returns by focusing on premium revenue, there is a ceiling to this strategy, and some industry observers believe that ceiling may be approaching in as little as 2-3 years.
“The US is probably a good example of reaching the end of that runway,” said Ponte. “Things are no longer booming, and you’re starting to see the market flatline.”
Asia-Pacific, meanwhile, remains the long-term growth engine, though its post-pandemic recovery has been uneven.
As supply-chain constraints ease and deliveries resume, growth should reassert itself, albeit from a lower return base.
Finally, Latin America and Africa offer even stronger long-term demand potential, but weaker balance sheets, currency risk, and regulatory fragmentation mean value creation remains elusive in the near term.
“South America and Africa remain perennial challenges,” said Ponte. “They are long-term opportunities, but they need a very long time to mature.”
A cleaner test after a bumpy 2025
Another factor that should work in the airlines’ favour is that 2026 is likely to offer a much stronger baseline case than the year just ending. In 2025, airlines had to grapple with a multitude of external shocks, none of which are likely to be repeated — at least not at the same intensity.
Escalating tariff disputes clouded global trade and business travel, while Middle East conflict and US political dysfunction — including the longest government shutdown in history — disrupted demand and planning visibility.
In its latest Outlook, J.P. Morgan described 2025 as a “lost year” for the airline industry’s “evolution narrative”, citing economic uncertainty from tariffs, the government shutdown, air traffic controller shortages, and disruptions at key airports such as New York Newark.
By contrast, it expects a more “normal” 2026, assuming no repeat of those shocks, with fuel costs potentially “surprising to the downside” and capacity discipline holding.
The removal of these headwinds sharpens the industry’s economic test. If profitability persists in 2026, it will do so without the distortions of recovery — but also without the drag of external disruption.
Can airlines break the value-destruction cycle?
Asked what it would take for airlines to escape the value-destruction trap, IBA’s Taylor said the solution will be “fundamentally structural”.
“The only credible route to improving long-term value creation is greater scale and discipline, including consolidation where possible, tighter capital allocation focused on ROIC rather than growth, and a willingness to exit structurally loss-making capacity,” he said.
“Without these changes, periods of profitability are likely to remain cyclical and fragile rather than sustainably value-accretive.”
Supply-chain normalisation would certainly help, but it is no panacea. As Oliver Wyman estimates, supply chain issues could cost airlines $11bn in 2025.
This is a significant number, but even if it was removed from the equation, it would not in itself resolve the value-destruction problem.
“If you remove some of these costs, the real question becomes: will airlines be disciplined enough to keep capacity where it should be, so yields stay up — or do they immediately add capacity and give the revenue back?”, said Ponte.
“On paper, you could build a waterfall where the industry clears its cost of capital. But this is a competitive industry — and the moment costs come out, the temptation is to expand again.”
The year of reckoning
By conventional profitability measures, aviation enters 2026 in good shape: but the real test is whether airlines can finally earn returns that exceed the cost of the capital they deploy.
If airlines can maintain discipline as supply constraints ease, the industry may begin to move from profitability towards genuine value creation.
If not, today’s record profits may be remembered merely as a cyclical peak from an industry that is still struggling to justify its own economics.