Air New Zealand and more airlines face a squeeze as jet fuel prices surge, engine shortages persist and a hot war keeps aviation costs high, forcing carriers to rethink fares, capacity and cash.
Air New Zealand and more airlines face a financial squeeze as jet fuel prices surge, while engine shortages persist. The Middle East war threatens fares, flights, capacity and profits across global aviation, putting the travel recovery under pressure in 2026. Meanwhile, maintenance bills and scarce aircraft deepen the strain. As a result, carriers must rethink cash, fleet planning and ticket pricing. Yet demand remains resilient, so airlines have opportunities to protect revenue. However, higher costs can quickly erode margins. Therefore, the shock is not only about fuel: it is a wider test of operational reliability, financial discipline and strategic resilience.
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The global airline industry is facing a common financial squeeze in 2026, with strong travel demand and resilient tourism failing to fully offset higher jet-fuel prices, engine shortages, maintenance bills and geopolitical disruption. Air New Zealand’s latest loss is therefore part of a wider aviation story affecting carriers across Asia Pacific, Europe, North America and beyond.
The International Air Transport Association (IATA) expects global airline net profit to fall to US$23 billion in 2026, almost half the US$45 billion estimated for 2025, while the industry’s net margin is forecast to shrink to just 2%. At the same time, airlines are expected to carry a record 5.1 billion passengers, showing that travel demand remains strong even as profitability comes under pressure.
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Fuel is at the centre of the problem, with IATA forecasting airline fuel costs of around US$350 billion in 2026, compared with US$252 billion in 2025, while jet-fuel prices are expected to average about US$152 a barrel. That creates a difficult equation for travel and tourism, because airlines need to recover higher costs through fares and surcharges without making international tourism unnecessarily expensive for travellers.
The industry’s aircraft supply problem is adding another layer of pressure, as the global aircraft order backlog reached approximately 18,100 aircraft in May 2026, leaving carriers dependent on older planes for longer. IATA says supply-chain failures cost airlines at least US$11 billion in 2025 through additional maintenance, delayed fuel savings, engine leasing and spare-parts requirements.
Air New Zealand reported a NZ$336 million loss before tax and a NZ$242 million net loss after tax for 2026, compared with a NZ$164 million pre-tax profit in the previous year. Revenue still increased 3.9% to NZ$7 billion, passenger revenue climbed 4.8% to NZ$6.1 billion and network capacity grew 1.3%, demonstrating how resilient travel demand can coexist with weak airline profitability.
The carrier identified four major pressures: fuel, engine availability, aviation system charges and maintenance, with the Middle East conflict alone increasing fuel costs by an estimated NZ$328 million before hedging. Engine problems involving Rolls-Royce Trent 1000 and Pratt & Whitney PW1100 aircraft engines were estimated to have cost NZ$190 million, while maintenance expenses rose by NZ$139 million.
Air New Zealand has nevertheless improved operational reliability, lifting on-time performance from 77.5% in 2025 to 84% during the second half of 2026. The airline is also pursuing its Te Pae Hou – Our Future strategy, focused on customer service, profitable growth and financial resilience as New Zealand seeks continued international tourism growth.
Air New Zealand has reported a $242 million net loss after tax for the 2026 financial year, as soaring jet fuel prices, prolonged engine availability problems, heavy aircraft maintenance and rising aviation system costs outweighed stronger passenger revenue and improved operational performance.
Financial Summary
· Loss before taxation of $336 million
· Net loss after taxation of $242 million
· Total revenue of $7.0 billion, up 3.9% on 2025
· Passenger revenue of $6.1 billion, up 4.8% on 2025
· Operating cash flow of $819 million, compared with $940 million in 2025
· ASK capacity up 1.3% across the network as aircraft returned to service, partly offset by capacity reductions as the airline responded to unprecedented, elevated fuel prices
· Result largely driven by increased fuel prices, the ongoing impact of multi-year engine availability issues, lifecycle maintenance costs and additional maintenance costs on leased engines, and aviation system costs rising at a rate well above inflation
· No final dividend declared, in line with the airline’s Capital Management Framework
The airline recorded a $336 million loss before tax, compared with earnings before tax of $164 million in the previous financial year. Despite the setback, total revenue rose 3.9% to $7 billion, while passenger revenue increased 4.8% to $6.1 billion.
The result highlights the difficult operating environment facing the national carrier as it enters a 2027 financial year that management describes as a period of transition and recovery.
The result was primarily driven by four factors:
· Jet fuel prices: The Middle East conflict increased fuel cost by an estimated $328 million compared to what we expected going into the second half, and by $205 million after hedging, with an estimated $135 million impact on the pre-tax result after fare adjustments and capacity reductions.
· Engine availability: Ongoing Rolls-Royce Trent 1000 and Pratt & Whitney PW1100 engine issues impacted the result by an estimated $190 million[2] through lost capacity, additional lease and engine costs, lower fleet utilisation and operating inefficiencies.
· Aviation system costs: New Zealand aviation costs have risen at more than twice the rate of inflation since 2019. Air New Zealand and our customers’ share of these aviation system charges across New Zealand and the offshore ports we fly to, was $1.2 billion in 2026, a price increase of $142 million on 2025. Of this, approximately $720 million was recognised as a cost in our financial statements in 2026, a price increase of approximately $83 million compared to 2025.
· Maintenance: 2026 was a peak aircraft maintenance year, with an increase of $139 million, excluding foreign exchange, compared to 2025, driven by lifecycle maintenance costs and additional maintenance costs on leased engines.
The biggest pressure on Air New Zealand’s financial performance came from fuel.
The airline said the Middle East conflict caused fuel costs to rise by an estimated $328 million compared with what it had expected for the second half of the financial year. Even after hedging, the additional cost was estimated at $205 million, with the overall impact on the pre-tax result estimated at $135 million after fare adjustments and capacity reductions.
Average jet fuel prices reached US$111 per barrel during the 2026 financial year, compared with US$88 per barrel in 2025. Fuel prices were particularly damaging during the second half of the year, when they increased 58% compared with the same period a year earlier.
Air New Zealand responded by adjusting fares and reducing capacity, attempting to balance higher operating costs with the price sensitivity of travellers.
The challenge is continuing into 2027. The airline said jet fuel is currently around US$150 per barrel, preventing it from providing earnings guidance for the new financial year.
Air New Zealand’s fleet has also been affected by continuing availability problems involving Rolls-Royce Trent 1000 and Pratt & Whitney PW1100 engines.
The airline estimated that engine-related disruption reduced its 2026 result by approximately $190 million. The impact included lost capacity, additional lease and engine costs, lower fleet utilisation and operational inefficiencies.
However, there are signs that this long-running problem is beginning to ease. Air New Zealand said aircraft availability improved towards the end of the financial year, with grounded aircraft returning to service earlier than expected.
Management now believes the airline enters 2027 in a considerably more reliable fleet position, although residual risks and costs remain.
Aircraft maintenance was another major financial burden during the year.
Air New Zealand described 2026 as a peak aircraft maintenance year, with maintenance costs increasing by $139 million, excluding foreign exchange effects. The rise was attributed to lifecycle maintenance and additional costs associated with leased engines.
At the same time, aviation system costs continued to rise sharply. The airline said New Zealand aviation costs have increased at more than twice the rate of inflation since 2019.
Air New Zealand and its customers faced $1.2 billion in aviation system charges across New Zealand and overseas airports during 2026, representing a $142 million increase from the previous year. Approximately $720 million was recognised as a cost in the airline’s financial statements.
Despite the financial loss, several parts of Air New Zealand’s underlying commercial performance improved.
Passenger revenue climbed 4.8% to $6.1 billion, while network capacity increased 1.3% as aircraft returned to service. Group revenue per available seat kilometre, or RASK, increased 3.4%, reflecting the airline’s efforts to manage fares and capacity.
Cargo revenue, however, slipped 0.6% to $484 million as higher fuel costs affected freight demand and customers adjusted their operations and volumes.
Overall operating costs increased 11.8%, while non-fuel operating costs rose 10%, or $438 million.
The airline is responding with a cost transformation programme and its new Te Pae Hou – Our Future strategy.
The strategy is built around three priorities: Customer First, Targeted Growth, and Resilient and Future Fit. Air New Zealand aims to improve reliability, strengthen its loyalty programme, pursue profitable network growth, diversify revenue and build a financially sustainable regional network.
The carrier delivered $94 million in incremental transformation benefits during 2026 and has identified a further $135 million in annualised savings from the 2027 financial year.
Operational performance has also improved significantly. On-time performance rose from 77.5% in 2025 to 84% during the second half of 2026, while customer satisfaction also improved. Nine of Air New Zealand’s 14 Boeing 787 aircraft have now received cabin retrofits, with the remaining aircraft scheduled to be completed by November.
Air New Zealand had previously expected to return to profitability in 2027 before the escalation in fuel prices and uncertainty surrounding the Middle East conflict.
The airline is now unable to provide earnings guidance for the year, reflecting continued fuel-price volatility.
There are nevertheless reasons for cautious optimism. Engine-related disruption is expected to decline, maintenance costs are forecast to be $50 million to $100 million lower than in 2026, and management expects its fuel-response initiatives to offset a greater share of elevated fuel costs.
Strong forward bookings into New Zealand are another positive signal, particularly for tourism.
Air New Zealand therefore enters 2027 with a mixed outlook: its financial recovery remains vulnerable to fuel prices and external shocks, but stronger reliability, improving fleet availability, rising passenger revenue and a focused cost programme provide the foundations for a potential turnaround.
Air New Zealand Chair Dame Therese Walsh said this year’s result is representative of the significant external pressures the business has faced in the last financial year.
“The Board and management have a well-defined plan to rebuild a financially resilient and commercially sustainable national airline, underpinned by our new strategy, Te Pae Hou – Our Future.
“As the national airline, our success is closely connected to New Zealand’s success. By strengthening our business and positioning Air New Zealand for sustainable growth, our strategy reset will enable us to play an even greater role in supporting tourism, exports and New Zealand’s long-term economic prosperity,” said Dame Therese.
Air New Zealand Chief Executive Officer Nikhil Ravishankar said the airline had responded decisively to prolonged engine constraints and the sharp increase in fuel prices, while continuing to improve the customer experience and operational performance of the airline.
“It’s been a very challenging year for aviation, and our financial result reflects these challenges. Given the price sensitivity of air travel, airlines globally have not been able to recover the full increase in fuel costs. We took quick and decisive action through fare adjustments and capacity reductions to balance affordability for customers and maximise recovery and will continue to do so.
“However, we are making real progress on what we can control, including improving our on-time performance from 77.5 percent in 2025 to 84.0 percent in the second half of the financial year, alongside an improvement in customer satisfaction.
“These are very significant improvements and have been the result of a detailed operational and resilience-driven review of our schedule that included a focused programme of initiatives across our team, and the rollout of new digital tooling in support of operational communication and decision making. We continue to invest in this area with a goal of being one of the top 5 airlines in the world for reliable and punctual operations.
“We have also taken decisive action to simplify parts of the organisation and evolve our operating model, including restructuring across a number of areas to reduce duplication, sharpen accountability and improve productivity. We have retrofitted 9 out of 14 of our Boeing 787 fleet – and the new interior product is resonating very well with customers. The remaining 787 fleet fit-out will be completed by November this year, slightly ahead of schedule.
“Additionally, after several years of disruption, the engine challenges that have constrained our network are now substantially behind us. Our teams have worked relentlessly with Rolls-Royce and Pratt & Whitney to return grounded aircraft to service earlier than expected, with aircraft availability improving by the end of the financial year. There are still residual risks and costs to work through, but we enter 2027 in a considerably more reliable fleet position.
“This progress matters, but there is still work to be done. We are making deliberate choices on capacity and taking a disciplined approach to both our costs and our capital. Our focus now is on translating the operational momentum we have built into stronger and more sustainable financial performance,” said Mr Ravishankar.
Qantas has produced a similar pattern, although it remains profitable rather than loss-making, with FY2026 underlying profit before tax falling 14% to A$2.064 billion while statutory profit after tax declined to A$1.29 billion. Revenue increased 7.1%, showing that strong travel and tourism demand continued to support the Australian carrier even as rising fuel expenses reduced earnings.
The Middle East conflict increased Qantas’ fuel bill by around A$610 million, with mitigation measures reducing the net earnings impact to approximately A$420 million. The airline is responding by adjusting capacity, strengthening its international network and bringing forward the retirement of its ageing A380 fleet to 2028 because maintenance and disruption costs are becoming increasingly difficult to justify.
Qantas’ experience matters for tourism because Australia relies heavily on aviation to connect long-haul visitors with major destinations, while strong forward bookings indicate that travellers have not abandoned international travel. The challenge is ensuring that higher fuel and fleet costs do not eventually push fares beyond what leisure travellers and tourism businesses can comfortably absorb.
Lufthansa Group carried more than 60 million passengers during the first half of 2026, but its adjusted EBIT fell to minus €229 million, down from positive €149 million a year earlier. Revenue increased 8% to €19.887 billion, while operating expenses climbed 7%, largely because of substantially higher fuel costs and the financial consequences of the Middle East crisis.
The second quarter showed the same pressure more clearly, with revenue rising 8% to €11.1 billion but adjusted EBIT falling to €383 million from €870 million. Lufthansa said fuel costs were approximately €750 million higher than a year earlier, while strikes added financial pressure, even though strong demand on Asian and African routes helped protect travel volumes.
For European tourism, Lufthansa’s performance is important because the group connects numerous regional markets with long-haul destinations, while route changes caused by geopolitical disruption are reshaping passenger flows. The airline expects adjusted EBIT of between €1.7 billion and €2.2 billion for 2026, but says the conflict and kerosene-price volatility remain key uncertainties.
Air Astana demonstrates how an airline can expand international travel while still suffering a major deterioration in profitability. The Kazakhstan-based group increased first-half 2026 revenue and other income by 16.1% to US$763.9 million, but reported a US$21.2 million net loss compared with a US$10.7 million profit in the same period of 2025.
The airline said higher international fuel prices, a stronger Kazakh tenge and continuing Pratt & Whitney engine problems pushed unit costs higher, with second-quarter CASK rising 24.3%. Air Astana expects a significant improvement in engine groundings by summer 2027, offering a potential path towards stronger margins as aircraft availability improves.
Singapore Airlines reported a S$76 million net loss in the first quarter of financial 2026/27, despite record quarterly revenue of S$5.714 billion. The airline’s results show how quickly a fuel-price shock can affect even a premium carrier with strong international demand and a powerful global brand.
Fuel costs increased 78.5%, making energy prices a central issue for the airline and the wider tourism ecosystem that depends on Singapore as a major aviation gateway. The result does not mean travel demand has collapsed, but it shows that high passenger volumes do not automatically translate into higher profits when operating costs accelerate sharply.
IndiGo reported a full-year FY2026 net loss of ₹23.936 billion, despite revenue from operations increasing 5.1% to ₹849.619 billion and passenger numbers rising 4%. The airline’s fuel cost actually declined 3.1%, but other costs excluding fuel increased 27.8%, pushing total expenses up 17.2%.
The figures highlight an important issue for India’s travel and tourism market: airlines can continue adding passengers and capacity while still facing substantial non-fuel cost inflation. IndiGo increased capacity by 9.5% during the year, but yield and load factor declined, demonstrating the pressure carriers face when attempting to balance affordability, growth and profitability.
Air India has taken a more direct approach to the fuel crisis by introducing and subsequently revising fuel surcharges across domestic and international routes. The airline said aviation turbine fuel represents nearly 40% of airline operating costs, while supply interruptions and higher prices created significant pressure on airline economics.
By April, Air India Group had raised international fuel surcharges to US$205 for Europe and the UK and US$280 for North America and Australia, while introducing different charges for other regions. Such measures demonstrate how higher aviation costs can move directly from airline balance sheets into the price of travel, potentially influencing tourism demand and consumer booking decisions.
Transat also shows the relationship between aircraft availability and tourism economics, with persistent Pratt & Whitney GTF engine problems affecting revenue management and operational efficiency. In its second quarter of fiscal 2026, revenue was affected by engine constraints, while adjusted EBITDA fell to negative C$20.7 million from positive C$98.4 million a year earlier.
The airline also faced higher fuel prices, increased employee costs and operational disruption after suspending Cuba flights because of fuel-supply problems at destination airports. For tourism-dependent markets, this demonstrates how airline constraints can quickly affect destination connectivity, holiday capacity and the ability of travellers to reach seasonal markets.
ITA Airways has faced one of the clearest examples of the global engine crisis, with almost 20% of its 80-aircraft fleet grounded because of Pratt & Whitney engine problems. The airline estimated its damages at around €150 million and was considering legal action over compensation, underlining the scale of the financial burden created by aircraft that cannot operate normally.
The issue extends well beyond Italy, with airline executives warning that engine repair delays, spare-parts shortages and constrained maintenance capacity are affecting carriers worldwide. Reuters reported that LATAM Brasil had 12 grounded aircraft, while Cathay Pacific had at one stage grounded as much as 50% of its fleet, showing why engine availability has become a strategic travel industry issue rather than a technical inconvenience.
WestJet has also responded to elevated fuel prices by adjusting its capacity, including an approximately 4% reduction in September flying and a smaller reduction in October. The Canadian carrier said the changes were designed to align capacity with demand while maintaining operational reliability as global fuel and supply pressures continue.
The move illustrates a wider airline strategy in 2026: carriers are attempting to protect margins without abandoning profitable travel markets. For tourism, capacity reductions can be significant because fewer seats may support fares while simultaneously limiting visitor flows to destinations that depend on international aviation.
The common thread across these airlines is not collapsing passenger demand, but the widening gap between revenue growth and cost growth. IATA expects passenger load factors to reach a record 84% in 2026, while global airline revenue is forecast to rise 9.4%, yet operating expenses are expected to grow 13%, leaving airlines with much less profit from each passenger.
The aircraft shortage is particularly important because airlines are keeping older aircraft in service while waiting for new deliveries, creating higher maintenance bills and delaying expected fuel-efficiency gains. That pressure affects travel prices, tourism capacity, airline schedules and the ability of destinations to attract visitors during peak seasons.
“The current airline environment shows that travel demand remains remarkably resilient, but the economics of aviation are becoming increasingly complex. Airlines are carrying millions of passengers, supporting tourism and connecting markets, yet fuel volatility, engine shortages, ageing fleets and supply-chain constraints are absorbing much of the value created by that demand. The industry must protect connectivity while improving operational resilience and cost discipline. For tourism, reliable air access remains essential, particularly for destinations dependent on long-haul visitors. The airlines that combine financial discipline with dependable service and smart network planning will be best positioned for sustainable growth as global travel continues.”
The airline results point to several issues that could influence travel decisions through 2026 and beyond.
The cause is clear: airlines face a costly combination of fuel inflation, engine shortages and war risk. The answer is not simply higher fares, because travellers may resist price increases. Instead, carriers must balance capacity, fleet reliability, fuel hedging, maintenance and cash carefully. Air New Zealand shows how quickly these pressures can turn resilient travel demand into weaker profitability. The reason this matters globally is that airlines operate on thin margins and have limited room for sudden cost shocks. Unless fuel markets stabilise and engine availability improves, financial pressure is likely to remain a defining challenge for airlines through 2026.
Airlines are facing unusually high operating costs even as passenger demand remains strong, with fuel prices, maintenance, labour, aircraft leasing and infrastructure charges rising. IATA expects global airline revenues to increase in 2026, but operating expenses are forecast to rise faster, reducing the industry’s net margin to around 2%.
There is no single global ranking because airlines have different fuel exposure, hedging strategies and network structures, but Air New Zealand, Qantas, Lufthansa and Singapore Airlines have all reported significant fuel-related pressure. Air India has responded directly by increasing fuel surcharges, while Qantas reported a major earnings impact from higher fuel expenses.
Yes, engine availability remains a major aviation industry problem in 2026, particularly for aircraft powered by Pratt & Whitney GTF engines. Airlines are also dealing with Rolls-Royce and GE Aerospace-related supply and maintenance challenges, while delayed repairs and spare-parts shortages are keeping aircraft out of service for longer.
They can affect tourism through higher fares, reduced capacity, schedule changes and weaker connectivity to destinations. However, current evidence shows that travel demand remains strong, meaning tourism is still providing an important revenue base for airlines despite the pressure on profitability.
Lower fuel prices, improved engine availability, faster aircraft deliveries and better maintenance supply chains could materially improve airline economics. Airlines are also pursuing cost transformation, network optimisation, stronger ancillary revenue and more efficient aircraft as they prepare for a more volatile travel and tourism environment.
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