The conflict in the Middle East has rapidly upended geopolitics, scrambling supply;chains and spiking oil prices. While it is too early to assess the impact on the airline industry, 2026 will undoubtedly be a challenging year.
The airline industry entered this increasingly turbulent year after a solid ending to the last. Airlines worldwide were profitable, due in part to strong travel demand and declining fuel prices.
However, operating costs continued their rising trend in the fourth quarter and will likely challenge the industry throughout 2026, particularly as oil prices spike.
In this edition the Oliver Wyman Airline Economic Analysis, we detail the financial performance of global airlines in the fourth quarter of 2025, as well as examine how airlines can better define and create a flight schedule that leads to growth.
A growing global economy and declining fuel costs lead to a strong fourth quarter
Airlines in our worldwide index experienced notable increases in capacity and revenue, and produced an operating margin of 7.2%, down slightly year-over-year due to an increase in operating costs.
Capacity grew globally by 5.5%, ;and revenue growth was almost 9%, more than double the 3.4% increase in global GDP. Consumer spending and disposable income rose in all regions; worldwide, consumer spending was up 6.6%.
Nevertheless, overall operating costs continued to increase. In the fourth quarter, global CASM was 4.8% while RASM was 3.2%. A 6% decline in fuel costs helped limit the impact of increased expenses.
Latin America and Asia/Pacific see strong margin growth while others stagnate
Airlines in Latin America and Asia/Pacific experienced double-digit margins, considerably outperforming Europe, where margins were flat, and North America, where margins declined.
In Latin America, operating margin grew slightly year-over-year to 16.6%, driven by larger increases in revenue than operating expenses. Despite operating expenses increasing 8.6% year-over-year, the CASM increase was small—0.2%.
While margins declined slightly in Asia/Pacific, performance was still strong. Margins posted at 10.5%, with CASM growth outpacing RASM. Capacity growth also outran revenue growth in the Middle East and India, although cost declines helped airlines achieve healthy margins.
The story differed in Europe and North America. An increase of 16.9% in total revenue matched the growth in operating expenses for European carriers, resulting in flat margins. High year-over-year revenues and costs were largely driven by the increased exchange rate between the euro and the US dollar.
In North America, growth of 6.1% outpaced both capacity growth of 1.8% and revenue growth of 4.1%, contributing to lower profits. The US government shut down from October 1 to November 12 , adversely impacting operating profit.
Rising costs challenge airline carriers as regional performance splits
Both full-service and value carriers faced rising costs worldwide, though financial performance for the segments varied notably by region. Latin America outperformed other regions, with both carrier types posting positive double-digit margins. That margin was higher than last year’s for FSCs but shrank for value carriers.
North American airlines saw a similar pattern, with FSCs posting stronger margins of 6.7 compared to 2.1 for value carriers–a year-over-year decrease. Cost growth outpaced revenue growth for both, but the gap was larger for FSCs that had higher capacity growth.
In Europe, both carrier types experienced minimal change to margins year-over-year. FSCs' revenue rose slightly above costs, underscoring marginal margin expansion. In contrast, expense growth slightly outpaced revenue growth, which shrank margins. Both groups experienced higher than industry average increases in RASM and CASM, driven in part by shifts in the euro to US dollar exchange rate.
In the Middle East and India, both full-service and lower-cost carrier groups remained profitable.
How smarter flight scheduling drives airline growth and performance
Flight schedules are a key reason people choose a particular carrier. Despite their importance, airlines struggle to develop a “good schedule.” Most airlines consider a good schedule the one that produces the most revenue at the least cost, but putting that definition into practice can be challenging.
For full-service and network carriers, the importance of hubs and connectivity is fundamental to their success. Our analysis of existing schedules revealed the need for airlines to maximize the benefits of hubs. Variability in connectivity has a strong impact on schedules and, consequently, growth. Smaller hubs are primarily sized around local or point-to-point demand, while larger hubs increasingly rely on connections to grow beyond local demand.;
The industry does not build hubs on a curve, but viewing them through that lens can be instructive. There is a strong correlation between nominal size and the amount of connectivity. In addition, after giving scores to local and connection opportunities for a peak travel day (Thursday) and an off-peak day (Saturday), we saw that connectivity scores, indexed to a weekly average, fell faster than local scores for almost every airline.
This suggests that airlines are pulling apart their connectivity faster than they are reducing their schedules. That practice should be examined more closely to develop the best schedule, particularly as the conflict in the Middle East puts new and shifting pressure on airlines. As airlines look to optimize their schedules, particularly by cutting weaker flights in the wake of higher oil prices, special emphasis should be placed on retaining connectivity with reduction in schedule to ensure revenue performance.
