Despite looking at a record turnover year of almost $1 trillion, the also record cots of $936 billion the aviation industry is expecting means 2024’s net profit will not follow the record-breaking path of the revenue, airlines anticipating to pocket $30.5 billion (3% net profit margin).
Amid the International Air Transport Association (IATA)’s Annual General Meeting, in Dubai, the association’s Director General, Willie Walsh, has doubled down on previous warnings that flying will get more expensive. The growing price of fuel, brought on by the pandemic-triggered inflation and Russia’s invasion of Ukraine, as well as increasing costs related to decarbonisation and limited Sustainable Aviation Fuel (SAF) production are the main reasons behind the relatively low profit margin expected this year, Walsh explained.
“Airlines will continue to do everything they can to keep costs in control as much as possible for the benefit of consumers. But I think it’s unrealistic to expect that airlines can continue to absorb all of the costs. It’s not something we like to do, but it’s something we have to do”, he said.
SAF in particular is a growing issue between the industry and legislators. While SAF mandates are being introduced around the world, demanding airlines to use minimum amounts of sustainable fuel, global production cannot sustain those mandates. Despite a tripling in production foreseen for 2024, it would still only account for 0.53% of aviation’s fuel needs, far less than the 2% mandated in the EU by 2025.
“Some governments have mandated airlines to purchase SAF in amounts that do not exist”, Walsh said. “And where they have mandated SAF production, there are no mechanisms to protect airlines from bearing the costs of supplier penalties for shortfalls. We witnessed this in France where fuel suppliers are happy to accept penalties for their failure to supply the SAF mandate. They simply exercise their monopoly power and pass those costs on airlines.”
Aircraft delivery delays, an issue that has been going on with bottlenecks along the supply chain since the pandemic, have also been exacerbated by Boeing’s disastrous year. The American manufacturer has had some of its planes grounded and production limited since January and, with weekly incidents, it unlikely to recover any time soon.
Despite the factors for flying to get more expensive being in place, the price spike is not as abrupt as airlines had predicted. Ryanair CEO, Michael O’Leary, who said two years ago that the era of €10 flights would be over and doubled down on a 5% to 10% fare increase following the Boeing scandals this year, has now reverted his position, saying that, in the end, pricing is only “flat to modestly ahead of last summer”.
