Airline profitability outlook improves for 2024

Return on invested capital in 2024 is expected to be 5.7%

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A Staff Reporter

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Willie Walsh, IATA’s Director General, speaks at the body's annual general meeting in Dubai on Monday. — Supplied photo
Willie Walsh, IATA’s Director General, speaks at the body's annual general meeting in Dubai on Monday. — Supplied photo

Published: Mon 3 Jun 2024, 7:02 PM

Net profits for airlines are expected to reach $30.5 billion in 2024 (3.1 per cent net profit margin), the International Air Transport Association (IATA) announced on Monday.

That will be an improvement on 2023 net profits which are estimated to be $27.4 billion (3.0 per cent net profit margin). It is also an improvement on the $25.7 billion (2.7 per cent 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 per cent, 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 per cent) in 2024, while total expenses are expected to reach $936 billion (+9.4 per cent) and total travelers are expected to reach 4.96 billion, all hitting record highs. 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 per cent return on invested capital is well below the cost of capital, which is over 9 per cent. 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.

Profitability is expected to strengthen in 2024 as revenues grow slightly faster than expenses (+9.7 per cent vs. +9.4 per cent respectively). Operating profits are expected to reach $59.9 billion (+14.7 per cent from $52.2 billion estimated for 2023). Net profits, however, are expected to grow slightly more slowly at +11.3 per cent, 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 per cent from $646 billion in 2023. Revenue passenger kilometers (RPKs) growth is expected to be 11.6 per cent year on year. The long-term 20-year growth trend is expected to see passenger demand grow 3.8 per cent annually for the 2023-2043 period.

Expenses

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 per cent in 2024.

Industry expenses are expected to grow to $936 billion in 2024 (+9.4 per cent on 2023). Fuel is expected to average $113.8/barrel (jet) in 2024 translating into a total fuel bill of $291 billion, accounting for 31 per cent of all operating costs.

SAF production could rise to satisfy 0.53 per cent of global demand for fuel in 2024, the cost of which will be $3.75 billion. That is $2.4 billion additional to what it would cost to purchase the same quantity of jet fuel. CORSIA-related costs are estimated to account for a further $600 million in 2024.

Delegates at IATA's Annual General Meeting & World Air Transport Summit 2024 in Dubai on Monday. — Supplied photo
Delegates at IATA's Annual General Meeting & World Air Transport Summit 2024 in Dubai on Monday. — Supplied photo

Non-fuel unit costs are expected to be 39 cents per available tonne kilometer (ATK), unchanged from 2023. This is slightly below the 39.2 cents/ATK reported in 2019.

Unit labour costs expected to be 12.9 cents/ATK, an improvement of 2.4 per cent compared with 2023. Due to higher volumes, the overall cost of labour is expected to grow 7.6 per cent 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.

Fleet

An inventory of 38.7 million flights is expected to be available in 2024. This is 1.4 million flights below previous estimates (December 2023) largely attributable to the slowing pace of deliveries in the face of persistent supply chain issues in the aerospace sector. For example, the number of aircraft deliveries scheduled for 2024 is expected to be 1,583, which is 11 per cent less than the expectations published just months ago that anticipated 1,777 aircraft would join the global fleet in 2024. Airlines are deploying larger aircraft as a mitigating strategy.

North America continues to be the most significant contributor to industry profits, supported by a high passenger load factor, robust yields, and strong consumer spending despite cost-of-living pressure. In 2024, passenger demand (RPK growth of 7 per cent) and a strong load factor at 84 per cent are expected to strengthen revenue development and operating profitability. Canada is seeing slower growth in traffic and greater wage pressure than the US market.

Europe has a positive outlook on performance with demand expected to remain strong in 2024. However, supply chain issues, together with high interest rates and the risk of labor disputes could limit the prospects for further near-term increases in profitability.

Asia-Pacific is expected to be responsible for half of the world’s RPK growth in 2024 driven largely by recovering domestic markets in China, Japan, and Australia. International travel in the region remains subdued, especially in China, where it is still below the pre-COVID levels. This indicates that there is still a lot of pent-up demand for cross-border travel in the region, which will likely boost future growth prospects.

Latin America has seen a steady improvement in financial performance since 2020, even as the performance across the region has been mixed. Where financial performance is lagging, this is largely a consequence of the economic and social turmoil observed in parts of the region. Countries in Central America, especially Mexico, El Salvador, Guatemala, and Honduras are key contributors to the region’s growth in profits. The improved outlook for 2024 is supported by the airlines in the region reporting strong sales growth and high profitability in the first quarter of the year and raising their guidance for the full year.

The Middle East benefits from the strength of both the region’s economies and its global hubs. The United Arab Emirates continues to benefit from its attractiveness to both leisure and business travelers. Meanwhile, Saudi Arabia’s massive investments in infrastructure and tourism are delivering robust growth in passenger and cargo volumes. Although airlines continue to add capacity, yields remain healthy and the demand for travel remains buoyant and looks set to continue apace. Geopolitical risks are the main threat, especially to the Levant carriers. The Gulf carriers are relatively less impacted unless tensions between Iran and Israel escalate.

Africa has a high operational cost base and a low propensity to spend on air travel. Moreover, connectivity challenges dampen the industry’s expansion and performance. Despite these headwinds, there is sustained demand for air travel, which should allow the market to deliver a second year of profitability.



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