IATA Revises 2025 Airline Profit Forecast Amid Economic Challenges

On June 2, 2024, the International Air Transport Association (IATA) announced a downward revision of its profit forecast for the global airline industry, projecting a net profit of USD 36 billion for 2025, a slight decrease from the previous estimate of USD 36.6 billion. This adjustment is primarily attributed to the impact of increasing U.S. import tariffs, which have contributed to a weaker global economic outlook and diminished demand for both passenger and cargo air travel.

The IATA's revised forecast reflects a broader trend in the industry, which has been grappling with fluctuating economic conditions and rising operational costs. The association noted that the robust economic growth initially anticipated has been undermined by U.S. trade policies that promote protectionism, resulting in a projected global GDP growth of only 2.5% for 2025, down from 3.2% in prior forecasts. According to the IATA's 2024 Economic Report, the projected growth in airline industry revenue has also been adjusted to a mere 1.3%, totaling USD 979 billion, significantly lower than the previously expected 4.4% growth to USD 1,007 billion.

Passenger revenue, a crucial component of the airline industry's financial health, is now expected to grow by just 1.6%, translating to USD 693 billion in 2025. This growth rate is notably slower than the 5.2% increase witnessed in 2024. Furthermore, cargo revenue is projected to decline by 4.7%, reflecting the adverse effects of heightened tariffs on U.S. imports, which have historically correlated with demand for air cargo services. Cargo traffic volume growth is forecasted to slow drastically from 11.3% in 2024 to a mere 0.7% in 2025, as noted by IATA’s analyst Dr. Emily Roberts, who specializes in global trade and transportation economics at the University of Cambridge.

The IATA's forecast has raised concerns regarding the sustainability of profitability within the airline sector. Despite expectations for continued revenue growth above pre-pandemic levels, the organization warns that the return on invested capital (ROIC) remains below the cost of capital, a troubling trend that could deter future investment. Specifically, the ROIC is projected at 6.7% for 2025, while the weighted average cost of capital (WACC) is expected to exceed 8.8%, widening the gap and signaling potential challenges in attracting necessary capital for industry recovery and sustainability efforts.

Dr. Sarah Johnson, an economist at Harvard University and author of a recent paper on the airline industry's financial health, emphasized the importance of industry consolidation to enhance profitability. "The widening gap between ROIC and WACC indicates a need for strategic mergers and acquisitions to streamline operations and improve financial returns," Johnson stated.

Amid these challenges, the IATA highlighted that lower fuel prices, estimated to drop by 9.6% in 2025, could provide some relief to airlines facing increasing operational costs. The forecasted decrease in fuel costs comes at a time when crude oil prices are modeled to average USD 69 per barrel, down from USD 75 in the previous forecast. This reduction in fuel expenses could offset some of the adverse effects of rising tariffs and a slowing economy.

The implications of these forecasts extend beyond mere financial metrics, affecting the broader economic landscape. As the airline industry plays a critical role in global connectivity and trade, a contraction in profitability may lead to reduced investment in infrastructure and innovation, further hindering economic recovery post-pandemic. The IATA urges governments and regulators to foster a more consolidated airline industry structure to enhance stability and attract investment. In light of these developments, the outlook for the airline sector remains cautiously optimistic, contingent upon the resolution of trade tensions and the stabilization of global economic conditions.

In conclusion, while the airline industry is expected to maintain revenues above pre-pandemic levels, the combination of rising costs, decreasing revenues, and the widening gap between returns on capital and cost of capital presents significant challenges. Stakeholders will need to adopt strategic measures to navigate these turbulent waters as they strive for a sustainable and profitable future.