IATA notes that the cost of capital is being driven up by rising interest rates, hindering the potential for significant profit growth. Despite the historic highs in revenue, the aviation sector must, like always, grapple with the challenge of maximising profits against the backdrop of increased financial and operating costs.
IATA's head, Willie Walsh, emphasised the need to put industry profits into perspective. "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", he remarks, highlighting the slim profit margins that characterise the commercial aviation industry.
Throughout 2023, profit margins are at around 2.6%. Looking ahead to 2024, the industry is projected to build on this success, reaching a net profit of $25.7bn and a slightly increased margin of 2.7%.
Industry revenues are expected to reach an historic high of $964bn in 2024. An inventory of 40.1mn flights is expected to be available in 2024, exceeding the 2019 level of 38.9mn and up from the 36.8mn flights expected in 2023.
Passenger revenues are expected to reach $717bn in 2024, up 12% from $642bn in 2023. Revenue passenger kilometres (RPKs) growth is expected to be 9.8% year on year. While that is more than double the pre-pandemic growth trend, 2024 is expected to mark the end of the dramatic year-on-year increases that have been characteristic of the recovery in 2021-2023.
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.
Cargo revenues are expected to fall to $111bn in 2024. That is down sharply from an extraordinary peak of $210bn in 2021, but it is above 2019 revenues which were $101bn.
Fuel price is expected to average $113.8/barrel (jet) in 2024 translating into total fuel bill of $281bn, accounting for 31% of all operating costs. Airlines are expected to consume 99bn 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 939mn tonnes from consumption of 99bn gallons of fuel.
Certain regions are still grappling with the aftermath of the pandemic. In countries like China, international travel remains 40% below pre-pandemic levels, emphasising the uneven nature of the global travel recovery.
Global instability, fuelled by events such as the Israel-Hamas conflict and the Ukraine war, has the potential to negatively impact the aviation sector. The continuous rise in oil prices, driven by geopolitical tensions, poses a direct threat as jet fuel prices account for over 30% of all airline operating costs.
The Middle East is expected to deliver a strong financial performance in both 2023 and 2024. The Middle East carriers have been swift to rebuild their international networks and restore their super-connector hubs. To that end, capacity is expected to grow faster than demand in 2024; however, with more efficient fleets, net profit margin has a potential to slightly increase. Middle Eastern airlines performed well over the last month and posted a 24.1% rise in October 2023 traffic compared to a year ago. Capacity rose 22.2% and load factor climbed 1.2 percentage points to 80.6%. There was little impact at the regional and global levels from the Israel-Hamas war, despite reduced airline operations to/from the region.
African carriers are expected to generate losses in both 2023 and 2024. The continent remains a difficult market in which to operate an airline, with economic, infrastructure, and connectivity challenges impacting the industry performance. Despite these challenges, there is robust demand for air travel. Underpinned by this demand, the industry continues to reduce losses.
Europe is expected to end 2023 with a stronger than expected performance, notwithstanding the various capacity issues and supply side constraints. With strong demand for air travel expected to continue in 2024, net profit is expected to marginally strengthen. The key risks to the region’s performance relate to the tight labour market, and the war in Ukraine and in the Middle East.
Consumers can expect airfares to continue to track rising costs, particularly oil. IATA data, however, show that competition continues to drive price benefits for consumers. The average real return air fare in 2023 is expected to be $254 which is 20% lower than the average fare of $315 in 2019 (measured in constant 2018 dollars).
“People assign a high value to the freedom to travel. The strong demand we’ve seen all year confirms that. And aviation is committed to ensuring that people can continue to enjoy this freedom. To do that in the long-term, we must also meet our commitment to achieve net zero carbon emissions by 2050. Last month, the Third Conference on Aviation Alternative Fuels (CAAF/3) agreed a global framework to promote Sustainable Aviation Fuel (SAF) production with the aim that aviation fuel in 2030 is 5% less carbon intensive than fossil fuel used today. Now, governments need to support that target by immediately putting in place policies to stimulate SAF production. It bears repeating: Last year, every drop of SAF that was produced was purchased. The same thing will occur this year. But, with a few notable exceptions, governments are not living up to their obligations to ensure SAF is plentiful and affordable to support the industry’s energy transition,” said Walsh.
The author is an aviation analyst. Twitter handle: @AlexInAir