Global airlines to see higher growth, but risks remain, say experts

Industry insiders say more targeted support is essential to help the aviation sector play its role as a core driver of trade and tourism.

The inability of manufacturers to deliver on new orders promptly has led to a worldwide shortage of aircraft, raising operational costs for airlines, and increased fares for passengers.

GENEVA:

 All indications are that the airline industry is set to soar in 2026, but experts have cautioned that key risks remain, making stronger industry support all the more crucial.

Issues such as supply chain bottlenecks are among the most significant headwinds, according to the International Air Transport Association (Iata), while thin margins particularly for Asian and African airlines will put pressure on profits.

For Malaysian carriers, this reality is already hitting home. “(Our airlines) are not insulated from the global risks that are threatening the industry,” transport consultant Wan Agyl Wan Hassan told FMT.

One of the major problems airlines around the world face today is their inability to expand or renew their fleet.

According to Stuart Fox, Iata director of flight and technical operations, deliveries for a total of new 5,340 aircraft have already been delayed globally.

As it is now, there is already a backlog of 17,000 aircraft on manufacturers’ order books. “This is equivalent to 60% of the entire world’s active fleet. It is enormous,” Fox told the media recently.

What is the impact? 

The shortfall in deliveries has forced airlines to hold on to their older aircraft, according to Fox.

At the current rate, an airline will have to wait an average of 6.8 years for its new aircraft to be delivered if an order is placed today, Fox said.

Supply chain constraints have been haunting airlines for the past few years, thanks to post-pandemic disruptions. This has led to a significant increase in travel costs for consumers.

In the face of such challenges the Malaysia Aviation Group (MAG) and AirAsia — the two largest carriers of the handful of Malaysia’s scheduled airlines — will have to adjust operations, Wan Agyl said.

“Given that they are unable to get new aircraft in the air, or engines and parts fast enough, these carriers will have to keep their older jets in service longer. This raises fuel costs and increases the need for heavy maintenance,” he added.

These constraints are now eating into already razor thin profit margins.

Iata estimates that the global airline industry will see a revenue of US$41 billion (RM167.7 billion) in 2026, but this works out to only US$7.90 (RM32.29) per passenger.

“This margin is so thin that even a minor shock caused by an increase in oil prices or geopolitical events can erase it,” Wan Agyl pointed out.

Cheap jet fuel provided some relief in 2025, but this can be offset by rising costs of non-fuel components such as labour and sustainability compliance in 2026.

According to Iata’s latest financial report, demand in the Asia-Pacific is strong, but airlines in this region are also among the least profitable. They are just ahead of African airlines but way behind Europe and the Middle East.

In the Middle East, airlines turn in a profit per passenger of US$28 (RM114.46), in Europe it is US$10 (RM40.88), but in Africa, it is less than US$1.50 (RM6.13). For Asia-Pacific airlines, the profit per passenger is US$3.20 (RM13.09).

Relieving pressures

Nonetheless, there is a silver lining, according to Iata director-general Willie Walsh. “Opportunities still abound, particularly for Malaysia,” he told reporters.

“Asia will be leading the momentum, with its many domestic markets already seeing growth at around 5%,” he said.

Southeast Asian airlines should focus on expansion to international markets. “That is where the real opportunity lies,” Walsh said. “Efforts should be made to woo tourists, which is still an underserved market.”

The challenge for Malaysian airlines is meeting that demand when there is a shortage of aircraft, he added.

But Wan Agyl pointed out that Malaysian carriers have already responded strategically by recalibrating their fleet and capacity expectations, tightened focus on markets that are still resilient and placing greater emphasis on operational stability over volume growth.

Given that tourism, trade, connectivity and national competitiveness are key components of the economy, economic enablers such as MAG can benefit from better support. Iata estimates that the industry already accounts for nearly 4% of the global economy and supports 87 million jobs.

Wan Agyl added that apart from mechanisms to support fleet modernisation, reduce operational risks, and other needs, a stable regulatory environment will also help to improve resilience in the industry. - FMT