Aviation Industry Expected to Surpass $1 Trillion in Total Revenue by 2025 as Profit Margins Improve Due to Falling Oil Prices [#IATAGMD]

The International Air Transport Association (IATA) has forecasted an improvement in the profit margin of the aviation industry to 3.6% by 2025. This was revealed at the IATA Global Media Day (IATAGMD) currently being held in Geneva, Switzerland.

Total revenue for the year 2025 is expected to reach $1.07 trillion, exceeding the $1 trillion mark for the first time ever. Operating profit is projected at $67.5 billion and net profit at $36.6 billion. The number of passengers is anticipated to reach 5.2 billion, a 6.7% increase from 2024, setting a new record of surpassing the 5 billion mark. Flight operations are expected to hit 40 million flights, up 4.6% from the previous year.

Despite accounting for nearly 1% of the global economy, the provision for taxes and interest payments of approximately $940 billion means that profit per person remains slim at $7. The downturn in oil prices will be beneficial, yet enhancements in supply chain efficiency and performance improvement are necessary. A depletion of carryover losses from the COVID-19 pandemic and an increase in tax rates, potentially squeezing profits, are also predicted.

Passenger revenue is expected to be $705 billion, with ancillary revenue projected at $145 billion. Yield is expected to decrease by 3.4%, with an average fare expected at $380. In real terms adjusted for inflation, this is a 44% decrease compared to 2014. Passenger demand is expected to increase by 8%, supply by 7.1%, with an average seat utilization forecasted at 83.4%. According to an IATA survey, 41% of respondents plan to increase their travel frequency, 53% will maintain it, while 47% intend to spend more on travel, and 46% will keep their spending the same.

Cargo revenue is forecasted at $157 billion, with demand increasing by 6% and revenue significantly exceeding pre-COVID levels. Geopolitical uncertainty leading to a shift from shipping to air transport, along with rising e-commerce demand from Asia, will support this increase.

Costs are expected to climb to $940 billion, a 4% increase from the previous year, with significant rises in non-fuel costs such as labor, strike-related expenses, and aircraft maintenance costs. Labor expenses alone are expected to rise by 7.6% to $253 billion, though productivity is also expected to increase. The workforce is projected to grow by 4% to 3.3 million people.

Jet fuel prices, for the first time since the start of the Russia-Ukraine war, fell to $70 per barrel in September. By 2025, they are expected to average $87 per barrel, a decrease of $12 from the previous year. Costs associated with purchasing carbon credits are also expected to rise.

Risks to the forecast include the potential widening of conflicts in Europe and the Middle East, tariffs and trade wars under the Trump administration, as well as interest rate hikes, inflation rekindling, and fluctuations in oil prices. (In collaboration with IATA)