In India, more than half of airlines have predicted that air travel demand will decline over the next two to three years. This prediction is impacted by rising jet fuel prices, increased maintenance costs, and delays in aircraft deliveries, which harm the growth outlook of the industry.
Economic and Political Challenges
McKinsey's report points to geopolitical uncertainties and ongoing conflicts, stating that these factors could disrupt air traffic patterns and fuel prices. Additionally, high operational costs may affect passenger demand. Given the sensitivity of air travel demand to prices, rising fuel and maintenance costs may exert further pressure on airlines.
Impact of Aircraft Delivery Delays
Capacity constraints due to aircraft delivery delays and related engine challenges could also affect the balance between supply and demand. While eight out of eleven subsectors of the aviation industry recorded positive economic profit in 2025, the overall aviation value chain still failed to cover its capital costs.
The report indicates that the global airline sector faced an economic loss of $12.8 billion in 2025, which is about 40% less than the average annual loss of $20.9 billion from 2012 to 2019. The economic profit margin in this sector has increased to negative 1.2%, while it was negative 2.8% in the pre-pandemic period.
About 40% of airlines have recouped their capital costs over the past three years, which is nearly double the long-term historical average. Additionally, 82% of airlines that created value in 2025 also achieved such success in 2024, indicating that some airlines are able to maintain profitability through premium products, additional revenue streams, loyalty programs, and operational efficiency.
While airlines, airports, and aircraft manufacturers have borne the brunt of the industry's losses, several service sectors, including catering, ground services, aircraft maintenance, and travel technology, have returned to positive economic profit. Furthermore, AI-based improvements could create opportunities for enhanced pricing, predictive maintenance, and customer service, but the report warns that high fuel prices and operational constraints may continue to pose challenges for the industry.
The aviation value chain has once again failed to collectively meet capital costs.
