The aviation industry is about to catch a major break. After years of volatile fuel costs that squeezed margins and forced carriers to hike fares, a convergence of global supply trends and moderating demand is setting the stage for what could be airlines' most favorable cost environment in nearly a decade.

According to the latest forecasts from the International Air Transport Association (IATA), jet fuel prices are expected to reach $88 per barrel in 2026—a 2.4% decline from 2025 levels. Meanwhile, the U.S. Energy Information Administration projects Brent crude to fall to an average of $55 per barrel in the first quarter of 2026, with prices expected to remain near that level for the rest of the year as global oil inventories continue to rise.

The Fuel Cost Equation Is Shifting

For airlines, fuel is typically the largest or second-largest operating expense. The coming relief couldn't arrive at a better time. IATA forecasts that fuel costs will decline to 25.7% of total operating costs in 2026, down from 26.8% in 2025—a meaningful improvement that flows directly to the bottom line.

The total cost of aviation fuel globally is expected to fall to $252 billion in 2026, a 0.3% decrease from the prior year. While consumption is rising—expected to reach 106 billion gallons, up 2.7% year-over-year—the price decline more than offsets the volume increase.

"Each 5% change in estimated average fuel cost per gallon in 2026 would have a material effect on airline earnings," noted industry analysts. For carriers like Delta and United, the impact could range from 5% to 10% of earnings, while American Airlines—with its higher leverage to fuel costs—could see effects of around 20%.

What's Driving Prices Down

Several factors are converging to push oil and jet fuel prices lower:

  • Rising global supply: U.S. shale production continues to grow, while OPEC+ faces pressure to maintain market share against non-member producers.
  • Inventory builds: The EIA expects global oil inventories to rise through 2026, putting sustained downward pressure on prices.
  • Demand moderation: Economic growth in major consuming regions, particularly China, has been slower than expected, tempering demand forecasts.
  • Expiring hedges: As high-cost fuel hedging contracts from 2024 and early 2025 roll off, airlines will be able to purchase fuel at prices closer to current market rates.

Jefferies brokerage assumes an average oil price of about $62.40 per barrel for 2026, compared with $70.20 in 2025 and $81.20 in 2024—a steady two-year decline that represents a sea change in airline economics.

Winners and Losers

Not all carriers will benefit equally. Airlines with sophisticated fuel hedging programs may actually see less immediate benefit, as they locked in prices when fuel was more expensive. Conversely, carriers that maintained minimal hedging positions—often criticized during the price spikes of 2022 and 2023—may now find themselves in an enviable spot.

The major U.S. legacy carriers are well-positioned to capitalize. Delta Air Lines, which reports Q4 earnings on January 13, is expected to show strong performance driven by robust demand in premium and corporate travel segments. Analysts project a 21.2% year-over-year increase in earnings per share for 2026, reaching $7.09.

Corporate travel sales were up 10% year-over-year, international travel revenue increased by 6%, and premium cabin revenue outpaced main cabin by 6 percentage points—all positive signals for the sector.

The Sustainability Wildcard

There's one factor working against the fuel cost tailwind: sustainability mandates. IATA expects additional airline costs for sustainable aviation fuel (SAF) to reach $4.5 billion in 2026. The available supply of SAF will be 2.4 million tonnes, representing 0.8% of global fuel consumption.

While still a small portion of overall fuel use, SAF requirements are growing and command significant price premiums over conventional jet fuel. European carriers face particular pressure as the EU's ReFuelEU Aviation mandate begins phasing in, requiring increasing percentages of SAF blending.

Still, for now, the overall trajectory is clear: lower fuel costs are partially offset by rising non-fuel costs, but the overall slowdown in inflation is helping to stabilize operating costs and position airlines for improved profitability.

What This Means for Travelers

Will lower fuel costs translate to cheaper tickets? History suggests the answer is: eventually, but not immediately.

Airlines have demonstrated remarkable pricing power during the post-pandemic travel boom, particularly in premium cabins. With load factors running high and demand for both leisure and business travel remaining robust, carriers have little incentive to slash fares in the near term.

However, the competitive dynamics of the industry suggest that at least some of the cost savings will eventually be passed to consumers. Low-cost carriers, which compete primarily on price, will likely be the first movers. If fuel costs remain low through 2026 and into 2027, expect promotional fares to become more aggressive and base fares to moderate.

For investors, the setup is compelling. Airline stocks have been volatile, battered by fears of an economic slowdown and concerns about overcapacity on certain routes. But the fuel cost tailwind provides a margin of safety that wasn't present in previous years. Combined with strong demand signals in premium travel segments, the sector may be entering a golden window for profitability.

As one analyst put it: "When fuel costs are high, airlines are at the mercy of commodity markets. When fuel costs are low, they're in control of their own destiny." In 2026, destiny is looking decidedly favorable.