World airline outlook: IATA raises profit forecast, but returns remain weak


On 3-Jun-2024 the International Air Transport Association (IATA) published improved airline industry profit forecasts for 2024 and also revised its 2023 estimates upwards. This is the result of strong demand, still benefitting from the post-COVID overhang of consumer enthusiasm for flying. This is driving revenue growth faster than cost growth, according to IATA.

However, margins are thin - the net profit margin is expected to be just 3.1% - and the industry remains unable to generate a return on capital that meets its cost of capital. As post-pandemic pent-up demand starts to soften, generating a sufficient return will become yet more challenging.

This further supports CAPA - Centre for Aviation's view that airline industry structure must change in the direction of greater consolidation to drive returns up.

This will need policy changes from governments and regulators.

  • IATA has raised its net profit forecast for 2024 from USD25.7 billion to USD30.5 billion.
  • Revenue is forecast up 9.7% year-on-year, thanks to passenger revenue strength, but cargo revenue is forecast to fall again.
  • The airline industry is set to exceed 2019 on almost every key measure, but not on ROIC. The industry has long struggled to meet its cost of capital.
  • Revenue strength is the key driver of 2024 profit improvement, but this is dampening.

IATA has raised its net profit forecast for 2024 from USD25.7 billion to USD30.5 billion

IATA now expects the world airline industry to generate a net profit of USD30.5 billion in 2024 - up from USD27.4 billion in 2023.

This would be the highest number since 2017.

In its last industry outlook, published in Dec-2023, IATA forecast USD25.7 billion for 2024, up from USD23.3 billion in 2023, so both numbers have been revised upwards.

This mainly reflects a stronger revenue outlook, although forecasts for costs have also been increased.

World airline net profit (USD billion): 2003 to 2024F

Revenue is forecast to be up 9.7% year-on-year…

IATA expects 2024 industry revenue to grow by 9.7%, to USD996 billion (7.6% previously), with costs growing at the slightly slower rate of USD9.4% (6.9% previously).

Revenue strength is driven by healthy demand, with traffic volumes forecast back above 2019 levels and passenger yields remaining robust.

…thanks to passenger revenue strength…

Passenger revenue growth is forecast at 15.2% in 2024.

Scheduled passenger numbers are forecast to be almost 5.0 billion in 2024, which is an increase of 10.4% year-on-year and 5% more than the 4.7 billion forecast by IATA last December for this year.

RPK growth for 2024 is now forecast to be 11.6%, up from 9.8% previously.

IATA has increased its expectation of passenger yield growth in 2024 to 3.2% from 1.8%.

…but cargo revenue is forecast to fall again

Cargo revenue is forecast to fall by 13.4% in 2024, after a 33.0% drop in 2023.

Cargo traffic volume growth is forecast at 5.0% (4.5% previously) and cargo yield is forecast to fall by -17.5% (-20.9% previously).

World airline revenue (USD billion): 2003 to 2024F

Cargo revenue's share of total revenue is back to 2019 levels

Both passenger and cargo revenue are forecast to be above 2019 levels in 2024.

However, they have both followed contrasting paths over the past five years.

Passenger revenue collapsed in 2020, but has grown every year since then. Cargo revenue increased in 2020 and 2021, fuelled by the transport of medical products during the COVID-19 pandemic.

However, after staying almost flat in 2022, it has fallen sharply over the past two years.

In 2019 cargo revenue was 12.0% of industry revenue - but this share rose to 40.9% in 2021.

IATA's 2024 forecast is that it will be back to 12.0% this year (after 15.2% in 2023). This is at the low end of its range over the past 20 years.

Passenger revenue is forecast to be 74.7% of revenue in 2024, more than its 72.4% share of 2019, while the share of other revenue is forecast to be 13.3%, versus 15.5% in 2019.

World airline revenue (USD billion): 2019 and 2024F

The airline industry is set to exceed 2019 on almost every key measure…

IATA's 2024 forecasts confirm that the world airline industry is expected to perform better than in 2019 on almost every important measure.

It can be calculated from IATA's forecasts and historic data that scheduled passenger numbers are set to be up by 9% compared with 2019, RPKs up by 5%, and cargo volume up by 1%.

None of these traffic measures exceeded 2019 levels in 2023. However, passenger yield has been above 2019 since 2022, and cargo yield has been higher than pre-pandemic levels every year since 2020 (although it has fallen from its 2022 peak).

Passenger yield and cargo yield are both forecast to be 17% above 2019 levels in 2024.

Passenger revenue is expected to exceed 2019 by 23%, cargo revenue by 19%, other revenue by 2%, with total revenue up by 19% on 2019 in 2024.

Net profit is forecast to be 16% higher than in 2019. The net margin is forecast to be 3.1%, the same as in 2019, but the operating profit margin is forecast to be up by 0.8ppts, to 6.0%.

A further measure favoured by IATA is net profit per departing passenger. This is forecast at USD6.14 in 2024, which is 6% higher than in 2019.

…but not on ROIC

Nevertheless, in spite of improvements compared with 2019 in almost every measure of traffic, revenue and profits, one crucial indicator is forecast to remain below the level of five years ago.

Return on invested capital (ROIC) is not expected to be back to 2019 levels this year. This measures the profit generated as a percentage of the capital invested in the industry.

IATA forecasts ROIC at 5.7% in 2024, just below 2019's 5.8%.

The gap to 2019 is not very significant, but crucially, the gap to the weighted average cost of capital (WACC) is still large. IATA estimates that 2024 ROIC will be about 3.4ppts below the world airline industry's WACC, which implies a WACC of 9.1%.

The WACC is the minimum level of return demanded by investors. Since capital is a scarce resource, investors will seek better returns from another sector if returns fail to meet this required minimum.

The weighted average cost of capital takes account of both equity and debt capital and a level of return that takes account of the risk of investing in the sector. Since the COVID-19 pandemic, the cost of debt has risen, and this has contributed to a rise in the WACC.

The industry has long struggled to meet its cost of capital

Meeting its cost of capital has long been a challenge for the airline industry. Even in that unprecedented decade of 10 straight years of positive net profits (2010 to 2019), ROIC levels were not good enough.

During that period, ROIC only just about equalled WACC in four years: 2015 to 2018.

A fluctuating measure, the weighted average cost of capital for the global airline industry has varied in the approximate range of 7%-10% over the past two decades.

However, ROIC has typically fallen short.

World airline industry: return on invested capital and weighted average cost of capital, 2003 to 2024F

Revenue strength is the key drive of 2024 profit improvement…

According to IATA, non-fuel unit cost per ATK is set to be flat year-on-year and broadly level with its 2019.

The key driver of improved airline industry profit forecast in 2024 versus 2023 is revenue growth, in particular passenger revenue growth. This is the result both of strong traffic volume and of rising yields.

…but this is dampening

However, to sound a cautious note, IATA figures tell us that yield growth has declined from 9.7% in 2022 to 8.1% in 2023E, and 3.2% in 2024F.

Passenger volume growth is also slowing as traffic returns to pre-pandemic levels (and higher).

The bounce-back in revenue reflecting the post-COVID unleashing of pent-up demand is starting to dampen. Future improvements in profit will likely need cost efficiencies if yield growth does not continue beyond 2024.

Supply chain constraints have served to limit capacity in the market to some extent, and this has also benefitted yields.

Nevertheless, even these conditions have not led to the airline industry covering its WACC.

Greater consolidation would improve industry returns

It is by no means easy to see the industry regularly achieving this in the near to medium term without changes to industry structure.

Higher returns are necessary to attract investors to finance the transition to a sustainable future for aviation.

As CAPA - Centre for Aviation has previously argued, weak returns reflect a fragmented industry structure in much of the global airline sector. Much of this is due to high barriers to exit, erected largely by governments and regulators.

Greater consolidation would improve returns, but this requires policies that are more conducive to consolidation.

See related CAPA - Centre for Aviation report: Barriers to exit must come down to raise airline returns, attract investors

This article was written on 04-Jun-2024.

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