IATA Outlook: Stronger profitability, despite supply chain issues

IATA released its financial outlook for the global airline industry in 2025, which reveals a slight strengthening of profitability amid ongoing cost and supply chain challenges.

Highlights of the industry association’s outlook include:

• Net profits are expected to be $36.6 billion in 2025 for a 3.6% net profit margin. That is a slight improvement from the expected $31.5 billion net profit in 2024 (3.3% net profit margin). 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).
• The return on invested capital (ROIC) for the global industry is expected to be 6.8% in 2025. While this is an improvement from the 2024 ROIC of 6.6%, the returns for the industry at the global level remain below the weighted average cost of capital. ROIC is the strongest for airlines in Europe, the Middle East, and Latin America, where it did exceed the cost of capital.
• Total industry revenues are expected to be $1.007 trillion. That is an increase of 4.4% from 2024 and will be the first time that industry revenues top the $1 trillion mark. Expenses are expected to grow by 4.0% to $940 billion.
• Passenger numbers are expected to reach 5.2 billion in 2025, a 6.7% rise compared to 2024 and the first time that the number of passengers has exceeded the five billion mark.
• •Cargo volumes are expected to reach 72.5 million tonnes, a 5.8% increase from 2024.

Willie Walsh, IATA’s Director General, observed: “We’re expecting airlines to deliver a global profit of $36.6 billion in 2025. This will be hard-earned as airlines take advantage of lower oil prices while keeping load factors above 83%, tightly controlling costs, investing in decarbonization, and managing the return to more normal growth levels following the extraordinary pandemic recovery.”

And he continued: “All these efforts will help to mitigate several drags on profitability which are outside of airlines’ control, namely persistent supply chain challenges, infrastructure deficiencies, onerous regulation, and a rising tax burden,”

Walsh pointed out that: “In 2025, industry revenues will exceed $1 trillion for the first time. It’s also important to put that into perspective. A trillion dollars is a lot — almost 1% of the global economy. That makes airlines a strategically important industry. But remember that airlines carry $940 billion in costs, not to mention interest and taxes. They retain a net profit margin of just 3.6%. Put another way, the buffer between profit and loss, even in the good year that we are expecting of 2025, is just $7 per passenger.”

But he warned that: “With margins that thin, airlines must continue to watch every cost and insist on similar efficiency across the supply chain—especially from our monopoly infrastructure suppliers who all too often let us down on performance and efficiency.”

IATA highlighted the broad benefits of growing connectivity. The most recent estimates show that airline employment is expected to grow to 3.3 million in 2025. Airlines are the core of a global aviation value chain that employs 86.5 million people and generates $4.1 trillion in economic impact, accounting for 3.9% of global GDP (2023 figures).  Connectivity is an economic catalyst for growth in nearly all industries.

IATA’s Director General observed: “Looking at 2025, for the first time, traveller numbers will exceed five billion and the number of flights will reach 40 million. This growth means that aviation connectivity will be creating and supporting jobs across the global economy. The most obvious are the hospitality and retail sectors which will gear up to meet the needs of a growing number of customers. But almost every business benefits from the connectivity that air transport provides, making it easier to meet customers, receive supplies, or transport products. On top of this, growth in aviation also contributes to achieving almost all the UN’s Sustainable Development Goals (SDGs).”

Outlook Drivers

Overall financial performance is expected to improve in 2025 on the back of lower jet fuel prices and efficiency gains. Further increases are being held back by forced capacity discipline resulting from unresolved supply chain issues. This is limiting growth opportunities and driving up several cost areas, including aircraft leasing and maintenance.

Net profitability will also be squeezed as airlines are expected to exhaust their tax losses carry forwards from the pandemic era, leading to an increase in tax rates in 2025.

IATA also said that with strong geopolitical and economic uncertainties, the most significant risks to the industry outlook include:

• Conflict: A worsening of prospects should the wars in Europe and the Middle East spread. Conversely, achieving peace in either conflict is likely to have a positive impact, particularly in the case of the Russia-Ukraine War.
• Trump Administration: The incoming Trump Administration in the US brings with it several significant uncertainties. Tariffs and trade wars would likely dampen demand for air cargo and potentially also impact business travel. Should these policies rekindle inflation with higher interest rates as a policy response, negative impacts on demand would be exacerbated. However, should the business-friendly stance of the first Trump administration continue into this term, gains from deregulation and business simplification could be significant. There is uncertainty regarding government support for aviation’s decarbonization efforts in the US until the path that the new administration will take becomes clearer.
• Oil Prices: Lower oil prices and resulting fuel costs are a major driver of improved prospects for airlines in 2025. Should these not materialize for any reason and considering the industry’s thin margins, the outlook could change significantly.

Regionally, IATA indicated in its outlook that all regions are expected to show improved financial performance in 2025 as compared to 2024, and all regions are expected to deliver a collective net profit in both 2024 and 2025.

Profitability, however, varies widely by carrier and by region. For example, 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%.

Go to www.iata.org for more.