The International Air Transport Association (IATA) has announced higher profitability projections for airlines in 2023, which will then largely stabilize in 2024. However, net profitability at the global level is expected to be well below the cost of capital in both years.
Highlights of IATA’s outlook 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 four percentage points, 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.
• 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.
“Considering the major losses of recent years, the $25.7 billion net profit expected in 2024 is a tribute to aviation’s resilience. People love to travel and that has helped airlines to come roaring back to pre-pandemic levels of connectivity,” said Willie Walsh, IATA’s Director General.
“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.”
While Walsh says the recovery is impressive, he notes that a net profit margin of 2.7% is far below what investors in almost any other industry would accept.
“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,” Walsh added.
The IATA leader said that airlines remain far too burdened by onerous regulation, fragmentation, high infrastructure costs “and a supply chain populated with oligopolies,” said Walsh.
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.
The high demand for travel coupled with limited capacity due to persistent supply chain issues continues to create supply and demand conditions supporting yield growth. Passenger yields in 2024 are expected to improve by 1.8% compared to 2023.
Reflecting the tight supply and demand conditions, efficiency levels are high with the load factor expected to be 82.6% in 2024, slightly better than 2023 (82%) and the same as in 2019.
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