Airlines are expected to rake in record revenue — but rising costs are eating at profits

The International Air Traffic Association (IATA) on Monday raised its profitability outlook for the airline industry, noting that operating profits are expected to reach $59.9 billion, a 14.7% increase compared to 2023. Net profits are set to reach $30.5 billion, growing 11.3% from last year and up from the IATA’s December prediction of $25.7 billion for the year.

Airlines in each region are expected to generate profits for the second year in a row, with Asia-Pacific carriers seeing the largest increase. That region is expected to be responsible for half of the world’s demand and a record $2.2 billion in profits, at margins of $1.10 a passenger.

North American airlines will make a net profit of $14.8 billion at $13.10 per passenger, although Canada is seeing slower growth than the U.S. market. The region is the “most significant contributor” to the industry’s profits, the IATA noted.

“In a world of many and growing uncertainties, airlines continue to shore-up their profitability,” Willie Walsh, IATA’s director general, said in a statement. “With a record five billion air travelers expected in 2024, the human need to fly has never been stronger.”

But the industry is also facing a number of issues, including problems across supply chains and record expenses.

The IATA predicts airlines to reach $936 billion in expenses this year, up 9.7% from last year and a record for the industry. Fuel alone is expected to cost $291 billion and account for 31% of all operating costs, while labor costs are projected to reach $214 billion.

Cargo revenue is expected to fall to $120 billion, from $138 a year earlier, and far below 2021's record $210 billion. The IATA also expects returns on invested capital to hit 5.7%, which it says is about 3.4 percentage points below the average cost of capital.

In remarks at the IATA’s conference in Dubai, Walsh noted that airlines retain $6.14 in profits per passenger, or the equivalent of “one single espresso in this hotel’s coffee shop.”

The IATA also warns that a series of issues could affect the industry this year, including the ongoing impact of the Russia-Ukraine war and the Israel-Hamas war. The trade association also noted that economic developments in China are being “closely watched” as growth slows and the risk of over-regulation from governments.

“Governments who love to look to our industry for new tax revenues need to understand that our margins are wafer thin and we rarely earn our cost of capital,” Walsh said.