Airline profitability: airlines can no longer afford to be the poor relations of aviation

Airlines remain, literally, the poor relations in the aviation family. A new report commissioned by IATA and using analysis carried out by McKinsey & Company compares the return on invested capital achieved by airlines and by other players in the aviation value chain.

All other parts of the value chain make higher returns than airlines, whose returns are consistently below the cost of capital. The fuel supply industry and labour capture significant value from air transport. With an estimated USD4-5 trillion of new capital required to fund the growth of air travel in emerging markets over the next 20 years, this situation may become unsustainable, the more so as governments increasingly resile from supporting their national airlines.

The IATA report was intended to provoke fresh thinking and calls for a more partnership-based approach across the value chain. The biggest hurdle is likely to remain the highly complex web of bilateral air service agreements restricting market access and airline ownership and control.