By Brazil Stock Guide — The global airline industry may be approaching a new inflection point. After three years defined by a strong post-pandemic recovery in demand, carriers are again confronting a question many thought had faded: whether they need to reduce capacity to protect profitability.
The warning came from Roberto Alvo, chief executive officer of LATAM Airlines Group and the new chair of the International Air Transport Association’s Board of Directors. In an interview with Reuters, Alvo said that if elevated fuel prices persist into 2027, airlines may be forced to make further capacity cuts.
His comments help crystallize a growing concern among industry executives gathered this week at IATA’s annual meeting in Rio de Janeiro. Demand is no longer the main problem. Cost is.
Jet fuel has moved back to the center of the industry’s concerns after the crisis caused by the closure of the Strait of Hormuz. According to projections presented by S&P Global during the event, prices may remain above pre-crisis levels until 2028, even under a scenario in which the maritime route gradually reopens.
At the same time, airlines face a second constraint: difficulty securing new aircraft. Manufacturers and suppliers continue to struggle with production problems, engine delivery delays and bottlenecks in critical components. Alvo said those challenges are likely to persist for another two to three years.
The result is a particularly uncomfortable combination for airlines. Costs are rising while the ability to expand supply remains constrained. Historically, that dynamic tends to favor carriers with stronger balance sheets and greater commercial discipline. Financially weaker airlines may be forced to cut routes, slow growth or accept lower margins to defend market share.
IATA expects global airline profits to fall to $23 billion in 2026, from $45 billion a year earlier. Although the industry is expected to remain profitable, the nearly 50% decline shows how quickly higher fuel costs can erode the gains from recovering demand.
Jet fuel is expected to account for more than 31% of airlines’ operating costs this year, compared with about 25% in 2025. In absolute terms, that represents roughly $100 billion in additional expenses for the sector.
In this context, Alvo’s remarks should be read less as a forecast and more as a signal that the industry’s behavior may be changing. In recent years, airlines rushed to rebuild capacity and capture the surge in post-pandemic travel demand. Now, the focus may begin to shift toward cash preservation, margin protection and returns on capital.
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