The airline industry is poised for a significant upturn in profitability in 2024, with experts forecasting a substantial increase in net profit per passenger.
According to recent data from IBA, a prominent aviation market intelligence and advisory company, net profit per passenger is expected to surge by nearly 60% between 2023 and 2024, reaching US$10.20 from US$6.40.
This surge comes as airlines ramp up their capacity, with first-quarter Available Seat Kilometers (ASKs) up by a notable 18% compared to the same period in 2023.
Macroeconomic Landscape – Supply and Demand
In 2023, the airline industry witnessed a historic surge in aircraft orders, particularly in Europe and the Asia-Pacific region, which collectively accounted for approximately 1,000 new commitments each.
This unprecedented surge propelled total net orders to a record-breaking 3,368 aircraft, more than double the figure for 2022, with minimal cancellations.
However, despite increasing manufacturing rates for both widebody and narrowbody aircraft since the onset of the global pandemic, meeting future production targets remains a challenge.
By the end of 2023, major Original Equipment Manufacturers (OEMs) had only achieved around 60% and 50% of their mid-decade targets for narrowbody and widebody aircraft, respectively.
This shortfall is expected to result in over 4,100 missing new build aircraft by 2027, impacting the industry throughout the lifecycle of these aircraft.
Projected Growth in Passenger Numbers
Despite the challenges posed by the pandemic, passenger numbers are on a steady upward trajectory.
Traffic in 2024 is projected to surpass 2019 levels by 4%, indicating a robust recovery to pre-pandemic levels.
Moreover, this growth trend is expected to continue, with a forecast of 12 trillion Revenue Passenger Kilometers (RPKs) by 2030, compared to 8.66 billion in 2019.
As aircraft technology advances and new-generation aircraft re-enter service, aircraft storage is predicted to revert to 2019 levels.
Currently, approximately 19% of aircraft are in storage, with 712 new technology aircraft awaiting deployment. Notably, 488 of these are from the A320neo family, with the majority powered by GTF engines.
Airline Profitability and Financial Strategies
In 2023, the aviation industry defied earlier projections of a global recession, experiencing a more favorable year than anticipated.
Improved unit costs and robust revenue performance contributed to a notable increase in net profitability, with airlines across all regions reporting an average net profit margin of 6%, compared to 0% in the previous year.
Looking ahead, while net profit improvement is expected to decelerate in 2024, Asia-Pacific is forecasted to see a significant increase in margins, from 5% in 2023 to 8% in 2024.
Airlines in Europe, the Middle East, and Latin America are leveraging profitability to reduce debts, which spiked in 2020 but have since been steadily declining.
Capacity Expansion and Industry Performance
The year 2024 continues to witness expansionary efforts by airlines, indicative of the industry’s ongoing recovery since 2020.
First-quarter global ASKs surged by 18% year-over-year, with notable increases across various regions.
Despite a slight improvement in overall airline performance, several airlines remain in a risk zone for performance and profit, highlighting the continued challenges faced by the industry.
Aircraft Trading Activity and Market Trends
The aviation transaction landscape is poised for growth in 2024, with projections indicating an increase in aircraft transactions compared to the previous year.
This growth is attributed to both lessor mergers and acquisitions (M&A) and heightened trading of leased aircraft.
Moreover, values and lease rates are anticipated to continue their upward trajectory, with strong growth forecasted for various aircraft models, including the 737 MAX 8, A320neo, and A350-900.
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