Airline stocks took a nosedive Wednesday after the International Air Transport Association (IATA) dropped a grim forecast: 2026 is shaping up to be the industry's worst year since the pandemic, thanks to a perfect storm of surging fuel costs and slowing demand.
The culprit? The closure of the Strait of Hormuz, which began on February 28 and has yanked about 10 million barrels per day of crude oil off the global market. Including refined products and LNG, the disruption hits roughly 15 million barrels per day. At one point, crude prices flirted with $150 a barrel.
For airlines, the pain is acute. Jet fuel prices have roughly doubled since late February, and the crack spread — the difference between crude and jet fuel — hit a record $80 a barrel in April. Refinery outages and tight supply are making things worse. Since Hormuz-linked flows account for about one-fifth of global seaborne jet fuel trade, competition for what's left is fierce, especially in Europe, the U.S. West Coast, and parts of Asia. Regional shortages are a real risk.
Passenger growth is stalling. IATA now expects global traffic to rise just 2.1% in 2026, a sharp slowdown from recent years. Higher fuel costs, airspace disruptions, and longer flight routes are weighing on demand, though travelers are still willing to fly. The pain isn't evenly spread: Middle East carriers face a significant contraction due to airspace restrictions, while Africa and Asia-Pacific might actually benefit from rerouted traffic.
Air cargo isn't faring much better. IATA forecasts cargo volumes will grow only 0.7% in 2026 as the conflict disrupts hub connectivity and limits capacity.
The bottom line? IATA projects airline revenue will rise 9.4% in 2026, but net profit is expected to fall to $23 billion, squeezing the industry's net margin to just 2% — the weakest since COVID. The energy shock is also expected to slow global GDP growth to about 2.5% from 3%, while pushing inflation above 5%, raising the specter of stagflation.
Investors didn't wait for the details. By Wednesday's close, Alaska Air Group (ALK) fell 3.61% to $43.50, United Airlines Holdings (UAL) dropped 3.27% to $106.05, Frontier Group Holdings (ULCC) lost 3.46% to $6.13, American Airlines Group (AAL) slipped 2.31% to $13.76, Delta Air Lines (DAL) dropped 2.36% to $79.25, and Southwest Airlines (LUV) shed 2.39% to $42.14. JetBlue Airways (JBLU) fell 1.63% to $4.84, Ryanair Holdings (RYAAY) lost 2.03% to $56.82, Copa Holdings (CPA) declined 1.62% to $133.18, SkyWest (SKYW) slipped 1.14% to $86.78, and LATAM Airlines Group (LTM) eased 1.02% to $48.76.
