The global airline industry is poised to see significant financial improvements, thanks to a 20% drop in Brent crude oil prices over the last year, IATA said in its semi-annual report on the airline industry. This price decrease is attributed to an oversupply in the market, with the United States solidifying its status as the leading oil producer and a shift in energy product demand, particularly in China. Despite a stable global GDP of 3.2%, the decline in oil prices is not linked to a weakening economic cycle.
For airlines, fuel costs, which comprise 30% of total expenses, are expected to decrease if jet fuel prices fall alongside crude oil prices. This reduction in costs is timely as airlines are projected to achieve a net profit of $31.5 billion in 2024, with a 3.3% net profit margin, despite facing higher operating costs and wage increases. The lower oil prices are anticipated to foster further monetary policy easing, potentially weakening the US dollar against most currencies, which could boost household spending power and support global growth.
The air cargo market has significantly bolstered airline traffic in 2024, with demand surging due to vibrant cross-border e-commerce and limitations in ocean shipping capacity. The global yields for air cargo have ceased declining and are now about 30% above pre-pandemic levels. Cargo yields are expected to maintain stability in 2025.
The industry is also expected to surpass a milestone in 2025, with revenues projected to exceed $1 trillion and a forecasted net profit of $36.6 billion, marking a record high at a 3.6% net profit margin. However, supply chain issues are anticipated to persist, impacting the industry's potential growth.
The drop in oil prices presents a unique opportunity for countries to reform fossil fuel subsidies and invest in renewable energy production. The report suggests that a year's worth of global fossil fuel subsidies, amounting to $7 trillion in 2022, could cover the entire capital investment needed for the airline industry's energy transition by 2050.
The airline industry has experienced robust passenger traffic in 2024, setting new records despite capacity constraints. Passenger traffic growth is expected to continue, albeit at a slower pace, as all regions surpass pre-pandemic levels. The industry's profitability in 2024 has been revised upwards from the previous year, which turned out to be the fourth best in three decades. The estimated operating margin for 2024 stands at 6.4%, a notable increase from the 20-year median.
In conclusion, lower oil prices are set to alleviate some financial pressures for airlines, potentially enabling investments in decarbonization. The industry's financial performance remains strong, with both passenger and cargo traffic contributing to the positive outlook.
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