The State Of Global Air Travel: Part One

After years of pandemic turbulence, airlines can finally brace for clearer skies in 2024, with soaring passenger demand and record revenues promising a much-needed financial cushion. But beneath the bright outlook, clouds of rising costs and geopolitical tensions linger, reminding the industry that smooth sailing is not guaranteed.

This is the first of a two part series designed to look at how the aviation industry will perform this year and into the future.

The International Air Transport Association (IATA) recently unveiled its 2024 forecast, painting a picture of cautious optimism. Airlines are set to rake in a global profit of $25.7 billion, a slight bump from 2023’s $23.3 billion. While this may sound like a silver lining, IATA Director General Willie Walsh cautions that profits remain far below the industry’s average, with a net profit margin of just 2.7%.

“Industry profits must be put into proper perspective. While the recovery is impressive, a net profit margin of 2.7% is far below what investors in almost any other industry would accept. Of course, many airlines are doing better than that average, and many are struggling. But there is something to be learned from the fact that, on average airlines will retain just $5.45 for every passenger carried. That’s about enough to buy a basic ‘grande latte’ at a London Starbucks. But it is far too little to build a future that is 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. Airlines will always compete ferociously for their customers, but they remain far too burdened by onerous regulation, fragmentation, high infrastructure costs and a supply chain populated with oligopolies,” said Walsh.

Passenger Power Drives Recovery: It’s all thanks to a renewed love for travel. A whopping 4.7 billion people are expected to take flight in 2024, surpassing pre-pandemic levels and injecting $717 billion into airline coffers. This translates to more planes in the air, with over 40 million flights scheduled – a welcome sight compared to 2019’s 38.9 million.

Cargo Takes a Backseat: However, the airfreight boom of the pandemic won’t last. Cargo volumes are expected to stabilize around 61 million tonnes, significantly lower than the 2021 peak of 101 million tonnes. This reflects a slowdown in international trade and the increasing availability of belly cargo space (cargo carried in passenger planes) as passenger flights reach pre-pandemic levels.

Fueling the Costs: Despite the revenue boost, airlines still face significant headwinds. The biggest culprit is fuel, with jet fuel prices averaging a hefty $113.8 per barrel in 2024. This translates to a $281 billion fuel bill, accounting for a staggering 31% of all operating costs. High crude oil prices are further exacerbated by a wider “crack spread” – the premium paid to refine crude oil into jet fuel, which is expected to average a hefty 30%.

Sustainability Takes Flight: In an effort to tackle these soaring costs and reduce their environmental footprint, airlines are increasingly turning to sustainable aviation fuels (SAF) and carbon offsetting programs. While SAF production is expected to remain a modest 0.53% of total fuel consumption in 2024, it represents a crucial step towards greener skies.

Risks Remain: Despite the rosy outlook, IATA warns that industry profitability remains fragile, vulnerable to both positive and negative surprises. Easing inflation and strong consumer demand could propel the industry further, while economic headwinds in China or rising unemployment could clip its wings. The ongoing war in Ukraine and potential supply chain disruptions add further uncertainty to the equation.

Regulatory Storm Clouds: On the regulatory front, airlines face potential cost increases from stricter passenger rights regimes, environmental initiatives, and accessibility requirements. These additional burdens could further squeeze their already thin profit margins.

The 2024 forecast for airlines is a tale of two skies – clear blue above, with record revenues and passenger demand, but with dark clouds of costs, geopolitical tensions, and regulatory pressures lurking on the horizon. While airlines can finally breathe a sigh of relief after years of pandemic turmoil, they must remain vigilant and adaptable to navigate the challenges that lie ahead and secure a truly sustainable future.

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