IATA's Walsh Says Airlines Set for Another Good Year in 2026

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00:00Willie, good morning. Thank you very much indeed for the time.

00:03Willie, for the last few years, this report has been dominated by the Americans.

00:07They've led the financial league tables since, I think, probably COVID.

00:11Yet this year, it's the Europeans that have taken over.

00:14And next year, it looks like it's going to be the same story.

00:18Willie, what's changed?

00:20Yeah, good morning, Guy.

00:21I think a couple of things.

00:23Obviously, growth in the US, in North America,

00:26has been relatively low compared to other parts of the world.

00:30Europe continues to do well.

00:31I think a weakening US dollar obviously benefits airlines who are not US dollar denominated.

00:3950% of an airline's cost base is typically in the US dollar.

00:43So if you see a weakening dollar, it typically would benefit airlines in Europe.

00:49And, you know, generally, the demand for aviation in Europe is stronger than the US.

00:53So we see Europe in absolute terms overtaking the US.

00:57Still in margin terms, both are doing pretty well.

01:01And the airline industry looking at another good year in 2026.

01:06Let's stay in the United States for a moment.

01:08The Federal Reserve is beating in Washington, D.C. today.

01:11The Trump administration would like to see rates coming sharply lower, Willie.

01:15Let's talk about cost of capital.

01:17Say the Fed cut rates aggressively in 2026.

01:20How significant an impact would that have on the outlook for US airlines?

01:26I don't think it'd have a major impact.

01:29Obviously, the debt levels in all airlines increased during the COVID crisis,

01:34coming out of the COVID crisis.

01:36I think most airlines have done well to strengthen their balance sheets.

01:40But, you know, obviously, the impact that it would have on consumer

01:43would clearly be beneficial.

01:47And I think one of the things we are seeing in the US is the weakening consumer demand

01:54as a result of the cost of living issues that have been highlighted there.

01:58So, you know, it would have to have a benefit for the industry.

02:02I think it would accelerate some.

02:04But in reality, though, capacity is being constrained by other issues in the US.

02:09Let's come on to those capacity issues in just a second.

02:11But just stay with the consumer for a moment.

02:14You've got a K-shaped recovery in America.

02:17The upper end of the income bracket is doing very, very well.

02:20The stock market is certainly helping.

02:23As a result of which they've been taking lots of trips abroad,

02:26the strong dollar has helped out with that.

02:28You referenced the fact that the dollar is beginning to weaken now.

02:30Do you think that kind of phase of Americans traveling abroad

02:34is going to peter out from here?

02:36We've seen certainly loads of them in Europe over the last few years.

02:39Is that about to change?

02:41I don't think it is going to change quickly.

02:43And you're absolutely right.

02:44You know, you look anywhere in Europe now, there's quite a lot of US travelers.

02:48And I think they've come to appreciate the value on offer in Europe.

02:52So the weakening dollar may discourage some people.

02:56But quite genuinely, if you look at here I am in Geneva,

02:59you know, the ski markets we're seeing being really dominated by US travelers

03:05because the cost of vacationing in Europe is significantly lower than doing so in the US.

03:12You mentioned a moment ago some of the capacity constraints that have been hitting the industry.

03:16Boeing and Airbus obviously are names that instantly spring to mind.

03:20But the engine manufacturers as well, what's been happening at Rolls-Royce, Pratt & Whitney

03:24and General Electric to a certain extent, but less so, have been impacting this industry.

03:32Do you think these are businesses that command huge margins, Willie?

03:36And I'm just wondering whether or not you think the airline industry is getting the kind of the wrong end of the stick on this one

03:42and whether things are going to improve from here.

03:46Well, I couldn't put it better myself, Guy.

03:48You know, you look at GE commercial engines margins for the first nine months of this year, 27.6% at an operating level.

03:56The airline industry looking at less than 7%.

03:59So there's a big disconnect between suppliers and the people doing all the work.

04:05And that just is not sustainable.

04:07So, you know, we're going to have to look more detailed at this because we've seen these margins increase in terms of GE,

04:18while, as I say, airline margins are pretty much stagnant.

04:22You know, net margins for us is about 3.9%.

04:25This year, 3.9%.

04:27Do you see some of the supply chain issues that have been hitting this industry over the last few years,

04:32just the availability of aircraft?

04:33Do you think that's going to improve in 2026?

04:36No, I don't really see any significant improvement.

04:39We're still seeing constraint delivery issues there.

04:42We've estimated that the cost of the supply chain disruption for the industry this year has been 11 billion US dollars

04:48as a result of the delayed delivery of new aircraft, increasing fuel burn, increasing maintenance costs.

04:54So that will continue into 2026 and probably 2027 as well.

04:59Willie, the Trump administration has just rolled back some of the Biden era auto fuel regulations for the car industry.

05:11Do you do you think that would be a good idea for the aviation industry as well?

05:15Do you think regulation on fuel is too tight?

05:17Do you think both Europe and the United States should reexamine that?

05:21And if so, how?

05:23Yeah, mandating fuels, the use of sustainable aviation fuel, I believe, is wrong.

05:29What we need to do is to continue to encourage production.

05:32We've got a big disconnect between the levels of sustainable fuel being produced for the airline industry

05:38and the mandates that are in place and all that's leading to is fuel suppliers making even greater profits on the back of the airline industry.

05:46In Europe, what we see happening is they're adding to the price of conventional jet to cover what they call compliance fees.

05:55In other words, the penalties that they may face if they don't meet the mandates that they're required to meet.

06:00So I think regulators do need to look at this again.

06:03You know, the industry remains committed to using sustainable fuel as the key element to reduce our environmental impact.

06:10But we're just not seeing supply being made available at the levels that we require.

06:15Willie, putting those all together, fares, what are they going to do next year?

06:19Is it going to be more expensive to fly or cheaper to fly in 2026?

06:24No, we think yields will actually be flat in 26 versus 25.

06:28Demand will continue to be relatively strong, about 4.9% up on this year.

06:32That's slightly less than we've seen before, but still reasonably healthy.

06:37OK, final quick question. Asia, that's the bright spot.

06:41That's where the growth is coming through.

06:43But we've started to see problems.

06:44We've seen what's been happening in India over the last few days.

06:47Do you think we can expect turbulence as these Asian airlines grow as quickly as they do?

06:51Do you think what is happening in India, the issues that have happened with Indigo,

06:55do you think we can see those replicated elsewhere?

06:56Are these guys growing too quickly?

06:59No, I don't think they're growing too quickly.

07:00But what we did see was a change in the regulatory environment,

07:03which imposed additional restrictions on how they operate.

07:07And I think that issue has caused a shock, particularly in the low-cost segment,

07:13which is much more impacted by some of the regulatory changes that has happened.

07:17So I think things will stabilise, Guy.

07:19I think growth is going to continue to be particularly strong in that region

07:23as they see the value of aviation driving their economies.

07:27Willie Walsh, the Director General of IATA in Geneva.

07:30Sir, thank you very much indeed.

07:32Indeed.

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