Air transport sees strong predictions in 2025, amidst supply problems
December 24, 2024
The International Air Transport Association (IATA) has an optimistic outlook for air transport demand in 2025, however, cost pressures and ongoing supply chain disruptions are the biggest frustrations, according to the trade body.
The good news is that global air transport is on an upward curve, and the remnants of the COVID-19 Pandemic appear to have been weaned off everywhere, except perhaps inward capacity to China, which is mostly driven by geopolitical issues in Ukraine and Russia.
IATA anticipates global airline net profits to reach $36.6 billion in 2025 for a 3.6% net profit margin. The average net profit per passenger is expected to be $7.0 (below the $7.9 high in 2023 but an improvement from $6.4 in 2024). Operating profit in 2025 is expected to be $67.5 billion for a net operating margin of 6.7% (improved from 6.4% expected in 2024).
However, there are still inconsistencies [globally] on the value of aviation and the interest in expanding aviation activities, not just airline connectivity, but also related industries. “I tend to highlight India quite a lot, where we’ve seen significant growth in the Indian domestic market and the aircraft orders announced by Indigo and recently by Air India,” stated Willie Walsh, IATA’s director general during a global media day in Geneva. He believes the ambitions of these carriers are bounded by realistic expectations for the way the market is going to grow.
Walsh highlights the efforts made by the Indian government in airport infrastructure and a clear recognition that for India to fully exploit the economic opportunities that exist there, they will heavily depend on air connectivity. “They also recognise that there are significant related industries, particularly MRO, where India can take advantage of the skilled labour that they have and we’re seeing quite a lot of interest in developing maintenance for their facilities as well,” he added.
Another area seeing significant investment in airport infrastructure is the Asia-Pacific region and to a smaller scale in Africa – mostly funded by Chinese investment.
In contrast, Walsh mentions The Netherlands where he thinks the government is still trying to restrict the movements at Schiphol airport, which in his opinion demonstrates a clear failure on the part of the government there to understand the importance of the hub airport and the value that it creates for the Netherlands.
Airline revenues are expected to grow by 4.4% to $1.007 trillion in 2025, and all regions are expected to deliver a collective net profit in both 2024 and 2025, however, regional performances will vary. For instance, the collective net profit margin of African airlines is expected to be the weakest at 0.9% while carriers in the Middle East are most likely to be the strongest at 8.2%, according to IATA.
Fuel for thought
The data on fuel shows that jet fuel prices fell to $70/barrel in September 2024 for the first time since the start of the Russia-Ukraine War. In 2025, jet fuel is expected to average $87/barrel (down from $99/barrel in 2024), based on a jet fuel crack spread of $12 per barrel and a crude oil price of $75/barrel (Brent). Consequently, airlines’ cumulative fuel spend is expected to be $248 billion, a decline of 4.8% despite a 6% rise in the amount of fuel expected to be consumed (107 billion gallons). Fuel is expected to account for 26.4% of operating costs in 2025, down from 28.9% in 2024.
Marie Owens Thomsen, SVP sustainability and chief economist considers the $80 mark as a cutoff for the impact that oil prices have on the global economy. “Above $80, the oil price is mostly negative for the global business cycle, and below that it flips and becomes much more positive for the global business cycle,” she said.
Owens Thomsen points to two major events that are unfolding and impacting the cost of fuel, firstly, the demand profile for refined products is changing: “For instance, China is switching its long-haul truck industry to being fuelled by gas, liquid natural gas, a more refined product, which reduces the demand for diesel at the refinery and has weighed on the price of oil products, obviously.”
Certainly, China is not the only place where this is happening yet, but it has a significant impact due to the size of its economy.
Secondly, the impact of several elections currently taking place and most notably in the US where the drill mantra, will likely continue to ensure the oil market remains oversupplied.
Supply chain woes continue
IATA predicts strengthened profitability in 2025 even as supply chain issues persist however, those complications are expected to increase costs and limit growth.
Walsh reports increasing frustrations from airlines by the failure of OEMs like Boeing, Airbus, GE, Rolls-Royce and Pratt & Whitney to deliver the products that they promised, which he believes is a major concern. “It doesn’t appear to be getting any worse,” observed Walsh, “but there’s no evidence of things getting better either, and we now see this disruption continuing for quite a few years,” he stated.
Industry rumours suggest the OEMs will likely continue to struggle until the end of the decade, and that is assuming everything goes in their favour. Consequently, Walsh thinks supply problems will be a major challenge going forward following the trends seen in 2024 which restricted growth –“Several airlines didn’t have confidence in their ability to operate their fleets because of the limitations on spare parts, but also very little confidence in getting the aircraft that they wanted,” he continued.
IATA has quantified the scale of the challenges facing airlines because of supply chain issues in its latest airline industry outlook. The highlights include the average age of the global fleet which has risen to a record 14.8 years, aircraft deliveries have fallen sharply from the peak of 1,813 aircraft in 2018 and the backlog for new aircraft has reached 17,000, a record high. Also, the number of parked aircraft is 14% (approximately 5,000 aircraft) of the total fleet (35,166 as of December 2024, including Russian-built aircraft).
Owens Thomsen also speaks on the supply chain bottlenecks stifling growth, specifically on the costs associated with keeping older aircraft in service. “Renewing the global fleet is, of course, a historic quest for our industry and it is also necessary for us to arrive at net zero emissions in 2050,” she mentioned.
Overall, IATA imagines financial performance to improve in 2025 on the back of lower fuel prices and efficiency gains, but unresolved supply chain issues could drive up several cost areas too, including aircraft leasing and maintenance.
