The International Air Transport Association (IATA) has announced strengthened profitability projections for airlines in 2023, which will then largely stabilise in 2024. However, net profitability at the global level is expected to be well below the cost of capital in both years. Very significant regional variations in financial performance remain.
Outlook highlights include:
- 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 p.p., as interest rates around the world have risen in response to the sharp inflationary impulse.
- Airline industry operating profits are expected to reach $49.3 billion in 2024 from $40.7 billion in 2023.
- Total revenues in 2024 are expected to grow 7.6% year over year to a record $964 billion.
- Expense growth is expected to be slightly lower at 6.9% for a total of $914 billion.
- Cargo volumes are expected to be 58 and 61 million tonnes in 2023 and 2024, respectively.
“Considering the major losses of recent years, the $25.7 billion net profit expected in 2024 is a tribute to aviation’s 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 cargo,” said Willie Walsh, IATA’s Director General.
“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. Of course, many airlines are doing better than that average, and many are struggling…”
Outlook Drivers
Overall revenues in 2024 are expected to rise faster than expenses (7.6% vs. 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.
Revenue: Industry revenues are expected to reach an historic high of $964 billion in 2024. An inventory 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.
Cargo revenues are expected to fall to $111 billion in 2024. That is down sharply from an extraordinary peak of $210 billion in 2021, but it is above 2019 revenues which were $101 billion. Yields will continue to be negatively impacted by the continued growth of belly capacity (related to strong growth on the passenger side of the business) while international trade stagnates. Yields are expected to further correct towards pre-pandemic levels with a -32.2% decline in 2023 followed by a -20.9% decline expected in 2024. They will remain high by historical standards, however. Note that yield progression has been extraordinary in these last years (-8.2% in 2019, +54.7% in 2020, +25.9% in 2021, +7% in 2022, -32.2% in 2023).
Expenses: are expected to grow to $914 billion in 2024 (+6.9% on 2023 and +15.1% on 2019).
Fuel price is 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.
High crude oil prices are expected to continue to be further exaggerated for airlines as the crack spread (premium paid to refine crude oil into jet fuel) is expected to average 30% in 2024.
Industry CO2 emissions in 2024 are expected to be 939 million tonnes from consumption of 99 billion gallons of fuel.
The aviation industry will increase its use of Sustainable Aviation Fuels (SAF) and carbon credits to reduce its carbon footprint. IATA estimates that SAF production could rise to 0.53% of airlines’ total fuel consumption in 2024, adding USD 2.4 billion to next year’s fuel bill. In addition, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is a global market-based carbon offsetting mechanism designed to stabilise international aviation emissions. The CORSIA-related costs are estimated at $1 billion in 2024.
Non-fuel expenses have been controlled relatively well by airlines despite inflationary pressures. With fixed costs being distributed over a larger scale of activity as the industry recovered from the pandemic, non-fuel unit costs are falling in line with pre-pandemic level. In 2024 it expects non-fuel unit costs of 39.2 cents per available tonne kilometer (ATK) in 2024 which is 1.6% above 2023 levels and matches 2019 levels. Total non-fuel costs are expected to reach $633 billion in 2024.
Risks
Industry profitability is fragile and could be affected (positively or negatively) by many factors:
- Global Economic developments: Easing inflation, low unemployment rates, and strong demand for travel are all positive developments. Nonetheless, economic strains could arise. In China, for example, slow growth, high youth unemployment and disarray in property markets if not managed properly, could impact global business cycles. Similarly, should tolerance of high interest rates weaken, and unemployment rise significantly, the strong consumer demand that has supported the recovery could weaken.
- War: 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.
- Supply Chains: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.
- Regulatory Risk: On the regulatory front, airlines could face rising costs of compliance, and additional costs pertaining to passenger rights regimes, regional environment initiatives, and accessibility requirements.
Regional Roundup
The regions have recovered from the pandemic at different speeds. At the regional level, North America, Europe and the Middle East are expected to post net profits in 2023. Asia Pacific will join the group in 2024, but it still expects Latin America and Africa to be in the red in 2024, said a release.