Supply constraints challenge airlines amid optimistic growth forecasts

Gross Domestic Product or GDP has been the traditional driver of airline economics.

However, although global GDP growth is expected to fall from 3.3% in 2024 to 2.5% in 2025, airline profitability may improve, according to industry analysts.

Global airline industry’s net profit to exceed $36bn this year, improved from the $32.4bn earned in 2024, largely on the back of falling oil prices, according to the International Air Transport Association (IATA), which is the global body of airlines.

Continued strong employment and moderating inflation projections are expected to keep demand growing, even if not as fast as previously projected.

Efficiency is another significant driver of the outlook. Passenger load factors are expected to reach an all-time high in 2025 with a full-year average of 84%, as fleet expansion and modernisation remains challenging amid supply chain failures in the aerospace sector.

Total traveller numbers are expected to reaching a record high 4.99bn in 2025, IATA data reveal.

Overall, total revenues are expected to grow by 1.3%, outpacing a 1% increase in total expenses, shoring up industry profitability.

Air passenger revenues are expected to reach $693bn in 2025 (+1.6% on 2024), an all-time high. This will be bolstered by an additional $144bn in ancillary revenues (+6.7% on 2024).

Passenger growth (measured in Revenue Passenger Kilometres/RPK) is expected to be 5.8% - a significant normalisation after the exceptional double-digit growth of the pandemic recovery.

It is expected that passenger yields will fall by 4% compared with 2024, which is largely reflective of the impact of lower oil prices and strong industry competition.

This will continue the trend of travellers benefiting from ever-more affordable air travel. The real average return airfare (in 2024 US dollars) is expected to be $374 in 2025. This is 40% below 2014 levels.

On the other hand, global air cargo revenues are expected to be $142bn in 2025, down 4.7% on 2024.

This is primarily based on the expected impact of reduced GDP growth largely influenced by trade-dampening protectionist measures, including tariffs.

As a result, air cargo growth is expected to slow to 0.7% in 2025 (from 11.3% in 2024). The cargo yield is also expected to reduce by 5.2%, reflecting a combination of slower demand growth and lower oil prices.

Although significant uncertainty remains on how trade tensions will evolve over the year, as of April, cargo demand was holding up well with a 5.8% year-on-year increase.

While demand for airline seats is rising, airlines around the world face a supply constraint: they can’t get new planes fast enough!

This shortage stems from several intertwined issues such as woeful production delays at major manufacturers Boeing and Airbus, supply chain disruptions, post-pandemic, and labour shortages.

The aircraft backlog exceeds 17,000 (sharply up from the 10,000-11,000 pre-pandemic), with an implied wait time of 14 years.

Supply chain issues have had significant negative impacts on airlines: driving-up leasing costs, increasing the average fleet age to 15 years (from 13 in 2015), cutting the fleet replacement rate to half the 5-6% of 2020, and reducing the efficiency of fleet utilisation (using larger aircraft than needed on some routes, for example).

In 2025, some 1,692 aircraft are expected to be delivered. Although this would mark the highest level since 2018, it is almost 26% lower than year-ago estimates. Further downward revisions are likely, given that supply chain issues are expected to persist in 2025 and possibly to the end of the decade.

Engine problems and a shortage of spare parts exacerbate the situation and have caused record-high groundings of certain aircraft types. The number of aircraft younger than 10 years in storage is currently more than 1,100, constituting 3.8% of the total fleet compared with 1.3% between 2015 and 2018.

Willie Walsh, IATA’s Director General, noted: “Manufacturers continue to let their airline customers down. Every airline is frustrated that these problems have persisted so long. And indications that it could take until the end of the decade to fix them are off-the-chart unacceptable!”