World airline outlook: IATA trims profit forecast. Tariffs bite; returns stay below cost of capital

On 2-Jun-2024 International Air Transport Association (IATA) trimmed its forecast of airline industry profit in 2025. The dramatic hike in US import tariffs has led to weaker global economic growth forecasts and lower expected demand for both passenger and cargo air travel.

IATA notes that the previous, more robust, economic outlook "has been thwarted by US trade policy that brings protectionism to a level not seen in decades".

However, the lower revenue outlook is very nearly matched by a lower forecast of costs (not least because of lower oil prices, themselves a result of the weaker economic backdrop).

The overall impact is that IATA expects a net profit forecast of USD36.0 billion, which is only slightly below its previous forecast of USD36.6 billion.

However, this continues to translate into a return on capital that is below the cost of capital. Moreover, the gap is widening.

As CAPA - Centre for Aviation has frequently argued, this shortfall to the cost of capital is evidence of an industry in need of further consolidation.