The International Air Transport Association (IATA) says airline industry net profits are expected to reach $25.7 billion in 2024, representing a 2.7 per cent net profit margin.
However, net profitability at the global level is expected to be well below the cost of capital this year and next, the association wrote in a press release Wednesday (Dec. 6).
In both 2023 and 2024, return on invested capital will lag the cost of capital by 4p.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, IATA says, while total revenues in 2024 are expected to grow 7.6 per cent year over year to a record $964 billion.
In addition, some 4.7 billion people are expected to travel in 2024, an “historic high” that exceeds the pre-pandemic level of 4.5 billion recorded in 2019, IATA says.
“Considering the major losses of recent years, the $25.7 billion net profit expected in 2024 is a tribute to aviation’s resilience,” said Willie Walsh, IATA’s director general. “People love to travel and that has helped airlines to come roaring back to pre-pandemic levels of connectivity. 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.”
Enough for a Starbucks coffee
Walsh added that industry profits “must be put into proper perspective.”
“While the recovery is impressive, a net profit margin of 2.7 per cent 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. But there is something to be learned from the fact that, on average airlines will retain just $5.45 for every passenger carried. That’s about enough to buy a basic ‘grande latte’ at a London Starbucks,” Walsh said.
“But it is far too little to build a future that is resilient to shocks for a critical global industry on which 3.5 per cent 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.”
IATA’s November 2023 passenger polling data supports an optimistic outlook.
A third of travellers polled say they are travelling more than they did pre-pandemic, IATA says.
Some 49 per cent indicate that their travel habits are now similar to pre-pandemic. Only 18 per cent said that they were traveling less.
Looking ahead, 44 per cent say that they will travel more in the next 12 months than in the previous 12 months.
Only seven per cent say they will travel less and 48 per cent expect to maintain similar levels of travel in the coming 12 months as in the previous 12 months.
North America remains the standout region in terms of financial performance, IATA notes.
It was the first market to return to profitability in 2022 and built on this performance in 2023 by delivering efficiencies, particularly in high passenger load factors.
“Consumer spending has remained solid, despite cost-of-living pressures, and the demand for air travel remains robust and is expected to outpace growth in capacity into 2024,” IATA says.