According to the International Air Transport Association’s (IATA) latest projections on airlines revenue and profitability for year-end and 2024, the industry is on track to reach historic revenues of $964 billion next year.
Airline profitability for 2023 performed better than expected in IATAās June outlook. Revenues for 2023 are now expected to reach $896 billion ($93 billion higher than expected). Expenses also grew to $855 billion ($74 billion higher than the previous forecast). That translated into a 2.6% industry wide net profit of $23.3 billion.
The strengthened projections for 2023 will largely stabilise 2024, IATA said, however net profitability at the global level is expected to be well below the cost of capital in both years, while significant regional variations in financial performance remain.
People love to travel and that has helped airlines to come roaring back to pre-pandemic levels of connectivity.
Willie Walsh, IATA Director General
Airline industry net profits are expected to reach $25.7 billion in 2024 (2.7% net profit margin). That will be a slight improvement over 2023 which is expected to show a $23.3 billion net profit (2.6% net profit margin). In both 2023 and 2024 return on invested capital will lag the cost of capital by 4 percentage points, as interest rates around the world have risen in response to the sharp inflationary impulse.
“Considering the major losses of recent years, the $25.7 billion net profit expected in 2024 is a tribute to aviationās resilience. The speed of the recovery has been extraordinary; yet it also appears that the pandemic has cost aviation about four years of growth. From 2024 the outlook indicates that we can expect more normal growth patterns for both passenger and cargoā, said IATAās Director General.
Overall revenues in 2024 are expected to rise faster than expenses, at 7.6% compared to 6.9%, strengthening profitability. While operating profits are expected to increase by 21.1% ($40.7 billion in 2023 to $49.3 billion in 2024), net profit margins increased at less than half the pace (10%) largely due to increased interest rates expected in 2024.
Besides the historic high revenues, a total of 40.1 million flights is expected to be available in 2024, exceeding the 2019 level of 38.9 million and up from the 36.8 million flights expected in 2023. The high demand for travel coupled with limited capacity due to persistent supply chain issues continues to create supply and demand conditions supporting yield growth. Reflecting the tight supply and demand conditions, efficiency levels are high with the load factor expected to be 82.6% in 2024, slightly better than 2023 (82%) and the same as in 2019.
Passenger revenues are expected to reach $717 billion in 2024, up 12% from $642 billion in 2023. Revenue passenger kilometres (RPKs) growth is expected to be 9.8% year on year. While that is more than double the pre-pandemic growth trend, 2024 is expected to mark the end of the dramatic year-on-year increases that have been characteristic of the recovery in 2021-2023.
Industry profits must be put into proper perspective. While the recovery is impressive, a net profit margin of 2.7% is far below what investors in almost any other industry would accept.
Willie Walsh, IATA Director General
“There is something to be learned from the fact that, on average airlines will retain just $5.45 for every passenger carried. Thatās about enough to buy a basic āgrande latteā at a London Starbucks. But it is far too little to build a future that is resilient to shocks for a critical global industry on which 3.5% of GDP depends and from which 3.05 million people directly earn their livelihoods. Airlines will always compete ferociously for their customers, but they remain far too burdened by onerous regulation, fragmentation, high infrastructure costs and a supply chain populated with oligopolies,ā said Walsh.
Expenses are expected to grow to $914 billion in 2024 (+6.9% on 2023 and +15.1% on 2019), with fuel prices expected to average $113.8/barrel (jet) in 2024, translating into total fuel bill of $281 billion, accounting for 31% of all operating costs.
Airlines are expected to consume 99 billion gallons of fuel in 2024, which will translate into 939 million tonnes of carbon emissions. However, IATA said the aviation industry will increase its use of Sustainable Aviation Fuels (SAF) and carbon credits to reduce its carbon footprint, estimating that SAF production could rise to 0.53% of airlinesā total fuel consumption in 2024.
Looking at the challenges the industry is facing, IATA said the operational impacts of the Ukraine war and the Israel-Hamas war have been largely limited to re-routings due to airspace closures. On the cost side, the conflicts have pushed up oil prices which is impacting airlines globally. An unexpected peace in either or both cases would bring benefits to the industry, but any escalation could produce a radically different global economic scenario to which aviation would not be immune.
Moreover, supply chain issues continue to impact global trade and business. Airlines have been directly impacted by unforeseen maintenance issues on some aircraft/engine types as well as delays in the delivery of aircraft parts and of aircraft, limiting capacity expansion and fleet renewal.
On the other side, easing inflation, low unemployment rates, and strong demand for travel are all positive developments, IATA said, warning that, nonetheless, economic strains could still arise.
