Rising Profits and Record Revenues Projected for Airlines in 2024

In 2023, the profitability of global airlines is projected to improve, followed by a period of stability in 2024. Nevertheless, net profitability at a global scale is anticipated to fall considerably short of the cost of capital in both years. Notably, there are substantial regional differences in financial performance.

In 2024, it is projected that the global airline industry will generate net profits of $25.7 billion, resulting in a net profit margin of 2.7%. This is a small increase compared to the estimated net profit of $23.3 billion (with a net profit margin of 2.6%) in 2023. For both years, the return on invested capital will fall behind the cost of capital by 4 percentage points, due to the rise in interest rates worldwide prompted by significant inflationary pressure.

In 2024, the operating profits of the global airline industry are projected to rise to $49.3 billion, up from $40.7 billion in 2023. It is anticipated that total revenues in 2024 will reach a new record of $964 billion, reflecting a year-over-year growth of 7.6%. Additionally, expenses are expected to increase by 6.9% to a total of $914 billion.

In 2024, the number of travelers is projected to reach a record high of 4.7 billion, surpassing the pre-pandemic level of 4.5 billion in 2019. Furthermore, cargo volumes are anticipated to reach 58 million tons in 2023 and increase to 61 million tons in 2024.

International Air Transport Association (IATA) Director General Willie Walsh acknowledges that the global airline industry’s projected net profit of $25.7 billion in 2024 is a testament to aviation’s resilience, despite significant losses in recent times. The enduring passion for travel has facilitated airlines in swiftly returning to pre-pandemic levels of connectivity. The rapidity of this recovery is remarkable; however, it is evident that the pandemic has set back aviation’s growth by approximately four years.

“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. 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. 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,” said Walsh.

Based on the IATA Global Aviation Sector Outlook, revenues in 2024 are projected to grow faster than expenses (7.6% vs. 6.9%), boosting profitability. Operating profits are set to rise by 21.1% ($40.7 billion in 2023 to $49.3 billion in 2024), while net profit margins will increase at a slower pace of 10% due to anticipated higher interest rates in 2024.

In 2024, the industry is projected to achieve record-breaking revenues of $964 billion. The inventory of available flights is also expected to increase to 40.1 million, surpassing the 2019 level of 38.9 million and the projected 36.8 million flights for 2023.

In 2024, passenger revenues are projected to rise to $717 billion, indicating a 12% increase from the $642 billion recorded in 2023. Growth in revenue passenger kilometers (RPKs) is estimated to be 9.8% compared to the previous year. Although this exceeds the growth trend observed before the pandemic, 2024 is anticipated to signal a halt to the substantial year-on-year increases witnessed during the recovery period of 2021-2023.

Passenger yields are projected to increase by 1.8% in 2024 as a result of the ongoing supply chain challenges and the strong demand for travel, which is exceeding the available capacity.

Efficiency levels are projected to remain high in 2024, reflecting the tight supply and demand conditions. The expected load factor for that year is 82.6%, slightly surpassing the figure for 2023 (82%) and aligning with the load factor recorded in 2019.

The optimistic outlook is backed by IATA’s passenger polling data from November 2023.

Out of the travelers surveyed, approximately 33% reported an increase in their travel compared to before the pandemic. Around 49% mentioned that their travel patterns are now similar to pre-pandemic times. Only 18% stated that they are traveling less. Looking ahead, it is anticipated that 44% of respondents will travel more in the next 12 months compared to the previous 12 months. Merely 7% anticipate a decrease in travel, while 48% expect their travel levels to remain similar in the next 12 months as they were in the previous 12 months.

However IATA warns that despite improvements, various factors can still impact the fragile profitability of the airline industry, posing risks.

Global Economic developments: Positive global economic developments include low inflation, favorable unemployment rates, and robust travel demand. However, potential economic challenges may emerge. In China, inadequate management of slow growth, high youth unemployment, and instability in property markets could affect global business cycles. Likewise, if there is a decline in tolerance for high interest rates and a substantial increase in unemployment, the strong consumer demand that has been driving the recovery could diminish.

War: The Ukraine conflict and the Israel-Hamas war have primarily resulted in re-routings caused by airspace closures. This has led to increased oil prices, affecting airlines worldwide. If an unexpected peace were to occur in either or both situations, the aviation industry would experience benefits. However, any escalation could have a significant impact on the global economy, with aviation being no exception.

Supply Chains: Global trade and business continue to be affected by supply chain challenges. Airlines are facing direct consequences, including unexpected maintenance problems with certain aircraft and engines, as well as delays in receiving aircraft parts and deliveries. These issues have hindered the ability to expand capacity and renew the airline fleet.

Regulatory Risk: Airlines may encounter increased expenses related to regulatory compliance, as well as additional costs associated with passenger rights regulations, regional environmental programs, and accessibility mandates.

SOURCE: Rising Profits and Record Revenues Projected for Airlines in 2024