An airline sector boss says airlines are making the equivalent of the price of a cup of coffee - albeit an expensive one - out of each passenger carried.
International Air Transport Association (IATA) director general Willie Walsh said profitability projections had strengthened so far this year but margins were under pressure.
“The airline industry is on the path to sustainable profits, but there is a big gap still to cover,” he told the association’s annual meeting in Dubai.
Walsh said 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 US$6.14 ($10) per passenger is an indication of just how thin our profits are — barely enough for a coffee in many parts of the world.”
He said a coffee in the lobby of the JW Marriott Marquis Hotel in Dubai - the meeting’s venue - was about that price.
The association represents 330 airlines and in the current year net profits are expected to reach US$30.5 billion - a 3.1 per cent net profit margin.
That will be an improvement on 2023 net profits which are estimated to be US$27.4b (3 per cent net profit margin).
Total revenues are expected to reach $996 billion in 2024, a record high and up 9.7 per cent.
Total expenses are expected to reach $936 billion ( up 9.4 per cent) in 2024, also a record high.
The number of travelers will break another record, reaching 4.96 billion 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,” Walsh said.
“With a record five billion air travellers expected in 2024, the human need to fly has never been stronger.”
Moreover, the global economy counts on air cargo to deliver the US$8.3 trillion of trade that gets to customers by air.
Strengthening airline profitability and growing financial resilience was 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 Walsh, previously chief executive of Aer Lingus and British Airways.
“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,” he said.
He told a media briefing it was unrealistic to expect airlines to continue to absorb all of the costs that were likely. Governments needed to be upfront about the cost of requiring airlines to meet environmental targets. Airlines agreed with the need to cut their environmental impact but ticket prices will go up.
“It’s not something we like doing, but it’s something that we have to do because we need to have a sustainable financial model that allows us to invest in our products and services for benefit of consumers and to ensure that we can build this warranty to achieve net zero in 2050,” he said.
Emirates is the host airline for the 80th IATA meeting. Its president, Sir Tim Clark, said he didn’t want to play the victim but margins in airlines were being squeezed much harder than many other sectors.
“It is quite amazing that ticket prices are where they are today.”
The IATA industry figures show revenue passenger kilometres (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 2023-43 period.
Passenger yields - crucial to an airline’s profitability - are expected to strengthen 3.2 per cent compared to last year.
When measured in constant 2018 dollars, the real average return airfare in 2024 is expected to be $US252, significantly less than the $US306 of 2019.
This continues the trend of ever-increasing affordability for air travel, even if the figures are somewhat skewed by shorter journey distances in 2024 due to the slower pace of recovery in some long-haul markets.
In line with this, IATA’s April 2024 polling data revealed that 77 per cent of respondents agree that air travel is good value for money.
And planes will be almost as full as they were pre-pandemic.
The average passenger load factor is expected to be 82.5 per cent in 2024.
This is largely in line with pre-pandemic levels (82.6 per cent in 2019) and reflects tight supply and demand conditions from ongoing supply chain issues for aircraft and engines.
IATA polling data in April found 39 per cent of respondents expect to travel more over the next 12 months than they did in the previous 12-month period.
The majority (54 per cent) said that they expected to travel as much as they did in the previous 12 months. Only 6 per cent reported that they expected to travel less.
Some 46 per cent of respondents expected to spend more on travel over the next 12 months than they did in the previous 12 months.
Fuel is expected to average US$113.8/barrel (jet) in 2024 translating into a total fuel bill of US$291b, accounting for 31 per cent of all operating costs.
“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 oer cent in 2024.”
Sustainable aviation fuel (Saf) production could rise to satisfy 0.53 per cent of global demand for fuel in 2024, the cost of which will be US$3.75 billion.
That is US$2.4b additional to what it would cost to purchase the same quantity of jet fuel.
Total employment in airlines is expected to reach 3.07 million, which slightly exceeds the 2.93 million employed in 2019.
A total 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.
The number of aircraft deliveries scheduled for 2024 is expected to be 1583, which is 11 per cent less than the expectations published just months ago.
Walsh said industry profitability was fragile and could be affected positively or negatively by many factors.
“Nonetheless, the sector has been largely resilient in the face of inflation, high interest rates, and slowing GDP growth in the post-pandemic period. Economic developments in China should be closely watched.”
He said the operational impact of the Russia-Ukraine war and the Israel-Hamas war has been largely limited to the immediate vicinity of these conflicts. An escalation of either conflict has the potential to shift the economic outlook negatively.
Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.
The Herald travelled to Dubai courtesy of IATA.
All of Israel’s commercial aircraft were sent outside of the country.