Airlines industry to strengthen profitability in 2025 amid supply disruption

GENEVA: The global airlines industry is projected to strengthen its profitability in 2025 with a net profit of US$36.6 billion (RM161.8 billion), representing a 3.6 per cent net profit margin amid ongoing cost and supply chain disruption, said the International Air Transport Association (IATA).

Meanwhile, total industry revenues are expected to be US$1.01 trillion (RM4.46 trillion), an increase of 4.4 per cent from 2024. This will top the US$1 trillion (RM4.42 trillion) mark for the first time.

IATA director-general Willie Walsh said the improvement will be hard earned as airlines take advantage of lower oil prices while keeping load factors above 83 per cent, tightly controlling costs, investing in decarbonisation and managing the return to more normal growth levels following the extraordinary pandemic recovery.

“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,” he said during IATA Media Global Day here.

The operating profit is expected to be US$67.5 billion (RM298.35 billion) for a net operating margin of 6.7 per cent, improved from 6.4 per cent expected in 2024.

The return on invested capital (ROIC) for the global industry is expected to be 6.8 per cent in 2025 compared to 2024’s 6.6 per cent, with the strongest ROIC for airlines in Europe, the Middle East and Latin America.

IATA Sees Improvement in Asia-Pacific Profitability

IATA said all regions are expected to show improved financial performances and deliver a collective net profit in 2025 compared to 2024.

It said Asia Pacific’s net profit is expected to be US$3.6 billion (RM15.91 billion), representing a 1.4 per cent net profit margin.

IATA noted that Asia Pacific is the largest market in terms of revenue passenger kilometres (RPKs) with China accounting for over 40 per cent of the region’s traffic.

In 2024, RPKs grew by 18.6 per cent, fuelled in part by market stimulus from visa requirement relaxations for entry to several countries including China, Vietnam, Malaysia and Thailand.

“Chinese carriers reported net losses in the first half of 2024 as a consequence of supply chain issues, oversupply in the domestic market and a limitation of 100 weekly frequencies from China to the United States.

“Asia Pacific has also experienced the sharpest drop in yields in 2024, thanks to strong demand and increasing load factors. A slight improvement in profitability is likely in 2025,” said AITA.

For the longer term, Asia-Pacific International traffic is seen rising 5.6 per cent on average in 2023-2043, behind ASEAN’s 6.1 per cent.

For next year, global passenger traffic is expected to grow 6.2 per cent to exceed the five billion mark for the first time to 5.2 billion.

Supply Chain Continues to Impact Airline Performance

IATA expects severe supply chain issues to continue to impact airline performance into 2025, raising costs and limiting growth.

Aircraft deliveries in 2025 are forecast to rise to 1,802, compared to estimated deliveries in 2024 of 1,254 aircraft.

This was well below earlier expectation for 2,293 deliveries with further downward revisions in 2025, it said.

The backlog for new aircraft has reached 17,000 planes, a record high.

“Supply chain issues are frustrating every airline with a triple whammy on revenues, costs, and environmental performance. Load factors are at record highs and there is no doubt that if we had more aircraft they could be profitably deployed, so our revenues are being compromised.

“Meanwhile, the aging fleet that airlines are using has higher maintenance costs, burns more fuel, and takes more capital to keep it flying. And, on top of this, leasing rates have risen more than interest rates as competition among airlines intensified the scramble to find every way possible to expand capacity,” said Walsh.

He added that the airlines need to be fixing their battered post-pandemic balance sheets, but progress is effectively capped by supply chain issues that manufacturers need to resolve.

Walsh said persistent supply chain issues are at least partially responsible for two negative developments, namely, stagnant fuel efficiency and soaring aircraft leasing costs.

“The entire aviation sector is united in its commitment to achieving net zero carbon emissions by 2050. But when it comes to the practicality of actually getting there, airlines are left bearing the biggest burden.

“The supply chain issues are a case in point. Manufacturers are letting down their airline customers and that is having a direct impact of slowing down airlines’ efforts to limit their carbon emissions.

“If the aircraft and engine manufacturers could sort out their issues and keep their promises, we’d have a more fuel-efficient fleet in the air,” said Walsh. – Bernama