IATA’s latest financial outlook for the global airline industry shows a halving of profitability as a result of war-related Middle East disruptions and high fuel prices – so much so that carrier per passenger profits wouldn’t even cover the cost of a hot dog at a FIFA World Cup game, says the association’s boss.
Somewhat more optimistically, IATA also forecasts record load factors and continuing demand for travel, despite the current “challenging and unpredictable times.”
Speaking at IATA’s 82nd annual AGM in Rio de Janeiro earlier this week, IATA Director General Willie Walsh declared, “No sooner did we put COVID behind us than we faced aerospace supply chain failures, war in Ukraine, geopolitical tensions, and tectonic shifts in trade policies. And, when war broke out in the Middle East in March, oil prices jumped, and jet fuel prices skyrocketed.”
As a result, IATA expects average jet fuel prices to be 70% higher year-on-year, which will add $100 billion in costs across the global aviation sector.
“The positive however, is that demand is holding up, even as airlines are raising fares and rates to cope,” Walsh noted, adding that while IATA polling suggests that 86% of travellers expect fares to track oil prices, 49% expect to spend more on travel this year than last, while an additional 43% plan to spend the same.
And that, Walsh says “bodes well for a strong northern summer peak season.”
But he warns, “The big unknown is how long travellers and shippers can tolerate the higher costs of connectivity.”
For airlines, growth will slow but is still expected to be 2.1% for the passenger business, according to IATA. Correspondingly, airline profitably is expected to halve from 2025, while net profits will fall from $45 billion to $23 billion in 2026, and net margins from 4.2% to 2.0%.
“It’s a tough year for all airlines, especially those whose balance sheets had not yet recovered from COVID – and, of course, for those operating in the Gulf,” with some of the latter facing “operational uncertainly,” said Walsh.
That also applies to “smaller carriers that started the year with weak balance sheets, (which) are certainly struggling.”
In sum, IATA’S DG observed, “Even in the best of times, the airline industry as a whole suffers from low margins and returns below the cost of capital. The oil price shock has tested airline financial resilience as net margins have been squeezed to 2.0% globally.
“Airlines are bearing the brunt of the fuel price shock. While air fares are rising, airlines are still absorbing part of the hike in their bottom lines. Net profit per passenger is expected to fall to $4.50, half of what it was last year.
“Under the circumstances, that shows resilience. But it won’t even buy you a hot dog at most of the FIFA World Cup venues…”
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