Airlines: turbulence and tailwinds in 2026

As 2026 begins, investors are faced with a mixed picture for the London-listed airline sector: strong leisure demand and disciplined capacity growth on one side, but persistent operational challenges and margin risks on the other. This article examines the recent performance and outlook for five key industry players – easyJet, International Consolidated Airlines Group (IAG), Ryanair, Wizz Air, and Jet2 – and assesses sector trends likely to define the year ahead.

Airlines are challenging businesses to run. They are low-margin businesses with enormous fixed costs – aircraft leases, maintenance, staff, and airport fees – while ticket prices are regularly driven down by competition and consumer price sensitivity. Fuel costs, which can account for up to a third of expenses, fluctuate unpredictably, adding further pressure. All these challenges leave little room for profit, even when times are good. Strategic missteps by management can be very costly indeed. 

Airlines sit near the top of the list of companies that are subject to “operational leverage”. High fixed costs and relatively low variable costs mean that small changes in revenue can produce disproportionately large swings in operating profit. In practice, this makes these businesses very sensitive to the economic cycle, demand shocks, and pricing power. In short, airlines live on a knife-edge. Small swings in ticket prices or in their load factor – a measure of how full their planes are – can dramatically change their profitability.

Sector backdrop: recovery meets reality

The pandemic’s aftermath initially unleashed a wave of pent-up travel demand, driving record revenues across European carriers. Yet the recovery phase has given way to a more-nuanced environment. Key industry themes include:

• Cost inflation. Wage increases, airport charges, and increasing leasing costs across the board.
• Supply-chain constraints. Aircraft delivery delays and engine reliability issues – most notably Pratt & Whitney’s grounding of its GTF engines – have disrupted scheduled services and made capacity planning challenging.
• Shifting booking behaviour. Later booking patterns, particularly in leisure travel, have pressured visibility and made it difficult to manage capacity.
• Regulatory and environmental pressures: SAF adoption and emissions targets add structural cost burdens that can put thin margins at risk.

Despite these headwinds, demand remains resilient – particularly for leisure and long-haul travel. The winners in 2026 will be those with strong balance sheets, diversified revenue streams, and operational agility.

IAG: back to pre-pandemic strength

International Airlines Group, owner of British Airways, Iberia, Vueling, Aer Lingus, and the low-cost carrier LEVEL, has staged a dramatic turnaround since the pandemic. However, the company hit a pocket of turbulence in the third quarter of last year, with revenues flat year on year. 

IAG’s third‑quarter results statement revealed early signs of pressure beneath what remained a robust headline performance, with weakness concentrated at British Airways and in unit revenues as capacity continued to rebuild across the industry. 

While the group still delivered solid profits, passenger unit revenue edged lower and growth lagged stronger rivals, reflecting softer demand for economy seats on some routes, foreign‑exchange headwinds, and cost pressures at British Airways. The contrast with stronger margins at Iberia and Aer Lingus underlined the uneven nature of the recovery across the group. 

Looking ahead, the results suggest that IAG is entering a more normalised phase of the airline cycle, where yield growth will be harder to sustain and execution will matter more than supply constraints. In airline finance, “yield” refers to the average revenue an airline earns for each passenger per unit of distance flown, and it is one of the industry’s most-closely watched indicators of pricing power and demand quality. In practical terms, it answers a simple question: how much money is the airline making for every kilometre a paying passenger is carried?

Investors will be watching closely to see whether premium and long‑haul demand can continue to offset pricing pressure in short‑haul markets, and whether management can contain costs and maintain margins as growth moderates and competitive intensity increases in 2026.

There are, however, reasons for investor confidence in its prospects:

• Long-haul dominance. North Atlantic routes remain highly profitable.
• Loyalty monetisation. IAG Loyalty delivered €420m profit in 2024, reinforcing ancillary revenue streams.
• Capital discipline. Dividend reinstatement and a €1bn share buyback signal the board’s confidence in group prospects.

The company is scheduled to issue its 2025 results on 27 February. Investors are expecting another year of strong profit growth and shareholder returns, underpinned by resilient demand for long‑haul travel and continued discipline on costs. Management has already flagged that it is on track to deliver higher revenues, earnings, and margins year on year, with its lucrative transatlantic routes remaining a key source of strength, and premium demand helping offset pockets of softness in economy travel. 

IAG’s focus on premium long-haul and loyalty economics should sustain earnings momentum. Risks centre on macro shocks and fuel costs, but its balance sheet is strong – and shareholder returns continue to be robust.

easyJet: delivering an attractive package

One of the standout performers in the low-cost carrier segment has been easyJet, thanks to its package-holiday arm, easyJet holidays. This relatively new side of its business delivered £250m of pre-tax profits in the year to 30 September 2025, up 32% annually. It had revenue of £1.4bn and 3.1 million customers. This diversification has cushioned seasonal volatility and boosted margins, offsetting pressures in its traditional flight operations.

The airline’s medium-term target for profit from holiday packages has been raised to £450m by 2030, underpinned by base expansion (e.g. Newcastle, Birmingham, and Southend) and new destinations such as Cape Verde and Tunisia. For investors, easyJet’s hybrid model – combining low-cost flights with high-margin packages – offers attractions as a hedge against cyclical shocks.

The company issues its first-quarter results on 29 January. This is the most-seasonally-weak period of the year, with losses expected to narrow year on year, helped by resilient demand, lower fuel costs, and continued growth in its holidays business. The winter quarter is traditionally loss‑making for airlines, and the focus will be on whether easyJet can demonstrate tighter cost control and improved capacity utilisation, alongside confirmation that bookings for the crucial summer period remain strong. 

Over the medium term, investors can expect continued growth in holidays and disciplined capacity management. Risks include fuel price volatility and competitive pressure on short-haul fares, but the structural shift towards leisure bundling positions easyJet favourably.

Ryanair: scale and cost leadership endure

Ryanair remains Europe’s largest low-cost carrier by passenger volume, leveraging its scale and cost discipline to maintain industry-leading margins. The group’s strategy – aggressive fleet expansion via Boeing 737 MAX deliveries and a relentless focus on costs – positions it well for continued success. However, Ryanair faces similar structural challenges to peers: airport fee inflation, SAF costs, and competitive pricing pressure in saturated short-haul markets.

Third-quarter figures from the Irish-based airline are scheduled to land on 26 January. Investors expect the statement to underline the carrier’s continued outperformance of the European airline sector, despite a more-challenging pricing environment and ongoing aircraft delivery delays. 

The winter quarter is Ryanair’s most profitable, and the market is looking for confirmation that strong demand and robust ancillary revenues helped offset softer fares earlier in the year. Ryanair is a different beast to most of its peers. The three-month period to 30 December is typically its most profitable and this is where its operational leverage comes into play. The fixed cost base means higher yields and fuller aircraft translate directly into earnings. 

People returning home with gifts for family and friends results in a rise in ancillary revenues from baggage, seat selection, and priority boarding, which boosts profit margins. This contrasts with many legacy carriers, where the winter period is loss‑making because long‑haul networks face weaker demand, higher exposure to transfer passengers, and greater staffing and operational complexity, while premium‑heavy capacity only fully pays off in the summer. 

Even compared with its low‑cost peers, Ryanair’s ultra‑low unit costs, disciplined capacity management, and ability to flex fares aggressively give it greater operating leverage during the Christmas quarter. This is a time when much of the wider airline sector is focused primarily on limiting winter losses.

When its third-quarter numbers are released, investors’ attention will focus on guidance for the final quarter and into summer 2026, particularly after Ryanair trimmed its full‑year passenger growth target following delays to Boeing deliveries, and on whether constrained short‑haul capacity across Europe continues to support yields. 

Ryanair’s low-cost leadership and its robust balance sheet underpin its resilience. Expect steady earnings growth this year, although upside may be capped by sector-wide cost inflation and regulatory headwinds.

Wizz Air: volatility and recovery in progress

Wizz Air has been the sector’s most-volatile equity story over the past two years as its management has grappled with a toxic mix of operational disruption, cost inflation, and strategic uncertainty. 

The airline has suffered particularly prolonged groundings linked to Pratt & Whitney’s engine inspections, which forced capacity cuts, aircraft leasing at higher cost, and repeated downgrades to profit guidance. Pratt & Whitney’s engines caused widespread airline groundings because a manufacturing defect created an elevated risk of premature engine failure, forcing airlines and regulators to take aircraft out of service for inspection and repair. Fuel-price swings, inflationary pressure on crew wages, and airport charges, plus geopolitical instability in central and eastern Europe added to investor unease. 

Of course, operational leverage played a part. Wizz Air’s ultra‑low‑fare model offered less protection than its peers when yields softened and costs rose, amplifying earnings volatility. More recently, there are signs that some of these issues are easing, with compensation agreements, improved fleet availability, and sharper capacity discipline stabilising its operations, but sentiment remains fragile. 

While management is positioning the airline for a recovery as grounded aircraft return to service, the shares are likely to remain sensitive until operational reliability improves consistently. Investors are convinced that margins can be rebuilt sustainably rather than simply propped up by short‑term fixes.

Wizz Air releases its third quarter figures on 29 January. Commentary from management on its route to recovery will be key. If groundings ease as projected, Wizz Air could regain some of its growth momentum. For now, investors should strap themselves in for continuing volatility.

Jet2: foggy visibility, strong growth case

Jet2 has also faced significant turbulence. Later booking trends, SAF costs, wage inflation, and Airbus delivery delays have pressured margins. 

Later booking trends have impacted the airline significantly, as cost‑conscious consumers delay travel decisions amid economic uncertainty, blunting its ability to lock in pricing and clouding its outlook. The shift has forced Jet2 to rely more heavily on late sales and tactical pricing to fill capacity, squeezing average yields and making earnings more sensitive to short‑term demand swings. This is despite load factors remaining strong.

Management has argued that the trend is partly cyclical. It argues that the behavioural change reflects subdued consumer confidence rather than structural demand weakness. However, the persistence of later booking behaviour suggests Jet2 may need to adapt by maintaining greater flexibility in capacity deployment and pricing. 

For the outlook, it implies continued earnings volatility in the near term, but not necessarily a deterioration in the longer‑term growth case, provided the company can leverage its strong brand, loyal customer base, and value proposition to capture demand once confidence improves.

Adding to the uncertain outlook for investors is the fact that Jet2 does not report its results on a quarterly basis. Its next scheduled results release is not until its interim statement in July. This information gap is likely to add to any volatility in the months ahead. 

Sector outlook for 2026: cautious optimism

Investors should expect a year of moderate growth and margin normalisation, shaped by three key dynamics:

• Cost inflation vs pricing power. SAF mandates and wage pressures will weigh on unit costs. Carriers with strong ancillary revenue streams (e.g. IAG loyalty and easyJet holidays) and pricing flexibility will fare best.
• Capacity discipline. Engine issues and delivery delays will constrain supply. This will support yields but limit volume growth.
• Balance sheet resilience. Liquidity and leverage metrics will differentiate winners from laggards. IAG and Ryanair lead on financial strength; Jet2 and easyJet offer structural hedges via holidays.

The sector is past its post-pandemic boom but remains attractive for selective exposure. Focus on carriers with diversified revenue, cost agility, and strong cash positions is likely to be key. But, in summary, IAG and Ryanair offer stability; easyJet and Jet2 have hybrid models that provide higher-margin diversification; Wizz Air is a recovery bet with higher risk-reward dynamics.