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By Chinelo Obogo
African carriers are expected to record losses in both 2023 and 2024, the International Air Transport Association (IATA) has predicted. The global aviation body which this week, announced strengthened profitability projections for airlines in 2023 across the regions, said the African continent remains a difficult market in which to operate an airline, with economic, infrastructure and connectivity challenges impacting the industry performance. Despite these challenges, there is robust demand for air travel. Underpinned by this demand, the industry continues to reduce losses.
In its economic outlook, IATA said though airlines will largely stabilise in 2024, net profitability at the global level is expected to be well below the cost of capital in both years and very significant regional variations in financial performance remain. It said the regions have recovered from the pandemic at different speeds and while North America, Europe and the Middle East are expected to post net profits in 2023, Latin America and Africa are expected to be in the red in 2024.
For African airlines, 2024 capacity is predicted to be up by 3.0 percent compared to 2019 and 9.4 percent compared to 2023. Demand for air travel with African airlines is expected to increase by 3.0 percent compared to 2019 and 7.3 percent compared to 2023, while net profit is expected to reduce by 3.4 percent this year and 2.7 percent in 2024, bringing about a loss of $0.4 billion next year.
Global aviation
On the global level, cargo revenues are expected to fall to $111 billion in 2024, which is down sharply from a peak of $210 billion in 2021, but it is above 2019 revenues which were $101 billion. Fuel price is expected to average $113.8/barrel (jet) in 2024 translating into total fuel bill of $281 billion, accounting for 31 per cent of all operating costs. Airlines are expected to consume 99 billion gallons of fuel in 2024.
The airline industry net profits are expected to reach $25.7 billion in 2024 (2.7 per cent net profit margin). That will be a slight improvement over 2023 which is expected to show a $23.3 billion net profit (2.6 per cent net profit margin). In both 2023 and 2024, return on invested capital will lag the cost of capital by 4p.p., as interest rates around the world have risen in response to the sharp inflationary impulse.
Airline industry operating profits are expected to reach $49.3 billion in 2024 from $40.7 billion in 2023, while total revenues in 2024 are expected to grow 7.6 per cent year over year to a record $964 billion and expense growth is expected to be slightly lower at 6.9 per cent for a total of $914 billion. About 4.7 billion people are expected to travel in 2024, an historic high that exceeds the pre-pandemic level of 4.5 billion recorded in 2019 and cargo volumes are expected to be 58 and 61 million tonnes in 2023 and 2024, respectively.
Speaking on the outlook for 2024, IATA’s Director General, Willie Walsh, said: “Considering the major losses of recent years, the $25.7 billion net profit expected in 2024 is a tribute to aviation’s resilience. People love to travel and that has helped airlines to come roaring back to pre-pandemic levels of connectivity. The speed of the recovery has been extraordinary; yet it also appears that the pandemic has cost aviation about four years of growth. From 2024, the outlook indicates that we can expect more normal growth patterns for both passenger and cargo
“However, industry profits must be put into proper perspective. While the recovery is impressive, a net profit margin of 2.7 per cent is far below what investors in almost any other industry would accept. Of course, many airlines are doing better than that average, and many are struggling. But there is something to be learned from the fact that, on average airlines will retain just $5.45 for every passenger carried. That’s about enough to buy a basic ‘grande latte’ at a London Starbucks. But it is far too little to build a future that is resilient to shocks for a critical global industry on which 3.5 per cent of GDP depends and from which 3.05 million people directly earn their livelihoods.
Airlines will always compete ferociously for their customers, but they remain far too burdened by onerous regulation, fragmentation, high infrastructure costs and a supply chain populated with oligopolies.”
Outlook drivers
Overall revenues in 2024 are expected to rise faster than expenses (7.6 per cent vs. 6.9 per cent), strengthening profitability. While operating profits are expected to increase by 21.1 per cent ($40.7 billion in 2023 to $49.3 billion in 2024), net profit margins increased at less than half the pace (10 per cent) largely due to increased interest rates expected in 2024.
Industry revenues are expected to reach an historic high of $964 billion in 2024. An inventory of 40.1 million flights is expected to be available in 2024, exceeding the 2019 level of 38.9 million and up from the 36.8 million flights expected in 2023. Passenger revenues are expected to reach $717 billion in 2024, up 12 per cent from $642 billion in 2023. Revenue passenger kilometers growth is expected to be 9.8 per cent year on year. While that is more than double the pre-pandemic growth trend, 2024 is expected to mark the end of the dramatic year-on-year increases that have been characteristic of the recovery in 2021-2023.
The high demand for travel coupled with limited capacity due to persistent supply chain issues continues to create supply and demand conditions supporting yield growth. Passenger yields in 2024 are expected to improve by 1.8 per cent compared to 2023.
