Summary

  • Airlines are projected to make $30.5 billion in 2023, but that’s below the cost of capital.
  • Real average airfare has fallen to $252, less than 2019’s $306, despite accusations of high prices.
  • Profit margins remain slim at 3.1%, and the industry faces challenges like supply chain disruptions, war and more regulations.

After enduring disastrous losses during the pandemic, airlines seem to be consistently back in the black, with IATA predicting they will earn net profits of $30.5 billion this year. While that is a significant number, IATA also pointed out that it is well below the cost of capital and equates to just $6.14 per passenger, which it said is “barely enough for a cup of coffee in many parts of the world.”

Are profit margins unsustainable?

Yesterday in Dubai, the International Air Transport Association (IATA) released its Airline Profitability Outlook 2024. In that, IATA said that 2023 net profits are estimated at $27.4 billion and that the 2024 estimate of $30.5 billion is an increase on its previous 2024 forecast of $25.7 billion issued in December 2023.

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In 2024, total travelers are expected to reach a record-high of 4.96 billion and generate total revenues of $996 billion, a 9.7% year-on-year increase. Total expenses are expected to reach $936 billion (+9.4%), returning an operating profit of $59.9 billion, compared to an estimated $52.2 billion in 2023.

Net profits of $30.5 billion represent a net profit margin of 3.1%, a slight improvement on the 2023 margin of 3.0%. The return on invested capital is expected to be 5.7% in 2024, about 3.4 percentage points below the average cost of capital.

IATA Director General Willie Walsh

Photo: IATA

It is often said that less than a handful of airlines earn above the cost of capital and can be classed as ‘investment grade.’ Speaking about the thin profit margins not covering the cost of capital, IATA Director General Willie Walsh said that the airline industry is on the path to sustainable profits, but there is a big gap still to cover.

“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.”

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Real airfares have fallen

Passenger revenues are expected to grow by 15.2% year-on-year (YoY) to $744 billion, while the long-term 20-year growth trend is expected to see passenger demand grow 3.8% annually for the 2023-2043 period. Airlines have been widely accused of maintaining high airfares, and yet IATA said that, when measured in constant 2018 dollars, the real average return airfare in 2024 is expected to be $252, significantly less than the $306 of 2019.

Ryanair and easyJet

Photo: Markus Mainka | Shutterstock

IATA expects this year’s passenger load factor to be 82.5%, almost identical to the 82.6% load factor recorded in pre-pandemic 2019. The report attributes the load factor to tight supply and demand conditions from ongoing supply chain issues for aircraft and engines.

The slowdown in Airbus and Boeing deliveries is affecting the number of flights in 2024, with an inventory of 38.7 million flights expected to be available this year. IATA said that is due to the slowing pace of deliveries in the face of persistent supply chain issues in the aerospace sector.

Boeing 737 aircraft fuselage shipment on BNSF train from Spirit Aerosystems

Photo: Ian Dewar Photography l Shutterstock

The number of aircraft deliveries scheduled for 2024 is now expected to be 1,583, 11% fewer than the expectations published just months ago for 1,777 aircraft to join the fleet this year.

To sum up, IATA said that industry profitability is fragile and could be affected by many issues in 2024, including escalating wars, unfavorable shifts in the global economy, ongoing supply chain issues, regulatory risk and, with more people going to the polls than in any other year, adverse changes in public policy.

What do you think about airline profits? Let us know in the comments.

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