American Airlines planes are seen at gates at LaGuardia Airport ahead of the Thanksgiving holiday, in Recent York City, U.S., November 21, 2023.
Shannon Stapleton | Reuters
Airlines expect record traveler numbers and revenues in 2024 but will proceed to be constrained by the high cost of capital and limited capability, the International Air Transport Association (IATA) said on Wednesday.
The industry group expects the sector’s net profits to achieve $25.7 billion in 2024 on a 2.7% net profit margin, a slight improvement from this 12 months’s upwardly revised projection of $23.3 billion net profit and a couple of.6% margin.
Total revenues in 2024 are set to grow 7.6% year-on-year to a record $964 billion, with around 4.7 billion people expected to travel in 2024, a figure exceeding the pre-pandemic level of 4.5 billion seen in 2019.
With demand for post-pandemic travel booming in North America, the Middle East and Europe, the airline sector has mostly recovered from the unprecedented hit suffered throughout the Covid-19 pandemic, when planes were grounded and travel banned for prolonged periods in most countries all over the world.
In an announcement, IATA Director General Willie Walsh said within the wake of the most important losses suffered in recent times, the expected stabilization of profits in 2024 was a “tribute to aviation’s resilience.”
“The speed of the recovery has been extraordinary; yet it also appears that the pandemic has cost aviation about 4 years of growth. From 2024 the outlook indicates that we will expect more normal growth patterns for each passenger and cargo,” Walsh said in an announcement.
The recovery of post-pandemic consumer demand was evident in Wednesday’s full-year results from Anglo-German travel group Tui, which posted a 139% increase in underlying earnings before interest and taxes (EBIT). The group also forecast a 25% year-on-year EBIT (earnings before interest and taxes) increase in 2024, sending its share price soaring.
Responding to Tui’s results, analysts at Jefferies said in a research note Wednesday that the market focus can be on the 2024 guidance, “which means a positive outlook for international travel from Europe.”
Cost of capital
Airline industry operating profits are expected to achieve $49.3 billion in 2024, up from $40.7 billion in 2023, in line with IATA.
Nonetheless, the body estimated that across each years, return on invested capital will lag the fee of capital by 4 percentage points in consequence of an enormous rise in rates of interest, as central banks tightened monetary policy during the last two years to combat inflation.
Walsh said the industry’s profit outlook have to be put into “proper perspective,” and that despite the impressive recovery, a net profit margin of two.7% stays “far below what investors in almost every other industry would accept.”
“In fact, many airlines are doing higher than that average, and lots of are struggling. But there’s something to be learned from the undeniable fact that, on average airlines will retain just $5.45 for each passenger carried,” he said.
“That is about enough to purchase a basic ‘grande latte’ at a London Starbucks. Nevertheless it is much too little to construct a future that’s resilient to shocks for a critical global industry on which 3.5% of GDP depends and from which 3.05 million people directly earn their livelihoods.”
Walsh added that while airlines will at all times compete “ferociously” for patrons, they continue to be “far too burdened by onerous regulation, fragmentation, high infrastructure costs and a supply chain populated with oligopolies.”
