The International Air Transport Association (IATA) has announced strengthened profitability projections for airlines in 2024 compared with its June and December 2023 forecasts. However it warns that an aggregate return above the cost of capital, however, continues to elude the global airline industry.
IATA said outlook highlights include:
• Net profits are expected to reach US$30.5 billion in 2024 (3.1% net profit margin). That will be an improvement on 2023 net profits which are estimated to be $27.4 billion (3.0% net profit margin). It is also an improvement on the $25.7 billion (2.7% net profit margin) forecast for 2024 profits that IATA released in December 2023.
• Return on invested capital in 2024 is expected to be 5.7%, which is about 3.4 percentage points (ppt) below the average cost of capital.
• Operating profits are expected to reach $59.9 billion in 2024, up from an estimated $52.2 billion in 2023.
• Total revenues are expected to reach $996 billion (+9.7%) in 2024—a record high.
• Total expenses are expected to reach $936 billion (+9.4%) in 2024—a record high.
• Total travelers are expected to reach 4.96 billion in 2024—a record high.
• Total air cargo volumes are expected to reach 62 million tonnes in 2024.
“In a world of many and growing uncertainties, airlines continue to shore-up their profitability. The expected aggregate net profit of $30.5 billion in 2024 is a great achievement considering the recent deep pandemic losses. With a record five billion air travelers expected in 2024, the human need to fly has never been stronger. Moreover, the global economy counts on air cargo to deliver the $8.3 trillion of trade that gets to customers by air. Without a doubt, aviation is vital to the ambitions and prosperity of individuals and economies. Strengthening airline profitability and growing financial resilience is important. Profitability enables investments in products to meet the needs of our customers and in the sustainability solutions we will need to achieve net zero carbon emissions by 2050,” said Willie Walsh, IATA’s Director General.
“The airline industry is on the path to sustainable profits, but there is a big gap still to cover. A 5.7% return on invested capital is well below the cost of capital, which is over 9%. And earning just $6.14 per passenger is an indication of just how thin our profits are—barely enough for a coffee in many parts of the world. To improve profitability, resolving supply chain issues is of critical importance so we can deploy fleets efficiently to meet demand. And relief from the parade of onerous regulation and ever-increasing tax proposals would also help. An emphasis on public policy measures that drive business competitiveness would be a win for the economy, for jobs, and for connectivity. It would also place us in a strong position to accelerate investments in sustainability,” said Walsh.
IATA noted that the outlook drivers are;
· Profitability is expected to strengthen in 2024 as revenues grow slightly faster than expenses (+9.7% vs. +9.4% respectively).
· Operating profits are expected to reach $59.9 billion (+14.7% from $52.2 billion estimated for 2023).
· Net profits, however, are expected to grow slightly more slowly at +11.3%, from $27.4 billion estimated for 2023 to $30.5 billion estimated for 2024.
· Industry revenues are expected to reach an historic high of $996 billion in 2024.
· Passenger revenues are expected to reach $744 billion in 2024, up 15.2% from $646 billion in 2023.
· Revenue passenger kilometers (RPKs) growth is expected to be 11.6% year on year. The long-term 20-year growth trend is expected to see passenger demand grow 3.8% annually for the 2023-2043 period.
· Passenger yields are expected to strengthen 3.2% over 2023.
When measured in constant 2018 dollars, the real average return airfare in 2024 is expected to be $252, significantly less than the $306 of 2019. This continues the trend of ever-increasing affordability for air travel, even if the figures are somewhat skewed by shorter journey distances in 2024 due to the slower pace of recovery in some long-haul markets. In line with this, IATA’s April 2024 polling data revealed that 77% of respondents agree that air travel is good value for money.
The average passenger load factor is expected to be 82.5% in 2024. This is largely in line with pre-pandemic levels (82.6% in 2019) and reflects tight supply and demand conditions from ongoing supply chain issues for aircraft and engines.
Cargo revenues are expected to fall to $120 billion in 2024 (from $138 billion in 2023). Both are down sharply from the extraordinary peak of $210 billion in 2021, but it is above 2019 revenues, which were $101 billion and an improvement on the previous forecast of $111 billion (announced in December 2023).
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Despite the strength of demand, cargo yields are expected to fall 17.5% in 2024 while remaining slightly above 2019 levels. This is a normalization after extraordinary pandemic highs. A key factor in this is the significant belly capacity that entered the market in 2023 in tandem with the recovery of passenger travel.
Industry expenses are expected to grow to $936 billion in 2024 (+9.4% on 2023) and fuel is expected to average $113.8/barrel (jet) in 2024 translating into a total fuel bill of $291 billion, accounting for 31% of all operating costs.
Labor costs have been tightly controlled with unit labour costs expected to be 12.9 cents/ATK, an improvement of 2.4% compared with 2023. Due to higher volumes, the overall cost of labour is expected to grow 7.6% to $214 billion in 2024.
Total employment in airlines is expected to reach 3.07 million, which slightly exceeds the 2.93 million employed in 2019.
IATA said that industry profitability is fragile and could be affected positively or negatively by many factor. These are:
· Global economic developments: Airline prospects have historically been closely linked to global economic trends. Nonetheless, the sector has been largely resilient in the face of inflation, high interest rates, and slowing GDP growth in the post-pandemic period.
· Economic developments in China should be closely watched. Slowing growth, youth unemployment, and the relative strength of the service sector over manufacturing are all indications that China’s economy is in transition, which could have broad impacts beyond its borders.
· War: The operational impact of the Russia-Ukraine war and the Israel-Hamas war have been largely limited to the immediate vicinity of these conflicts. An escalation of either conflict has the potential to shift the economic outlook negatively.
· Supply chains: Supply chain issues continue to affect 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.
· Public policy: With more people going to the polls than in any other year, 2024 has the potential to significantly shift the global political landscape. Although a greater political focus on business-friendly policies and strengthening economies would be welcome, a political shift away from global institutions, international trade, and policy paralysis from polarized politics would likely be detrimental. Further, as airlines redouble their decarbonization efforts, any slipping in the political determination to reach net zero carbon emissions by 2050 could risk the policy support that airlines need to achieve this important
