2024 proved to be a successful year for travel, with global tourism rebounding to 98% of pre-pandemic levels in the first three quarters, as reported by the UN Travel. The UN Tourism Confidence Index for the September/December period reached 120 points, surpassing the baseline expectation of 100, according to Statista. Looking ahead to 2025, the International Air Transport Association (IATA) anticipates a significant growth in the industry. It is projected that airlines will transport a record-breaking 5.2 billion passengers, marking a 6.7% increase from 2024. Cargo volumes are also expected to rise by 5.8%, and total industry revenues are forecasted to exceed $1 trillion for the first time, representing a 4.4% increase from the previous year.
The growth in travel can be attributed to various factors, including the continuous rise in global population and increased spending on travel. Between 2009 and 2019, the world’s population grew from 6.9 billion to 7.8 billion, with travelers spending more per trip on accommodations, dining, and transportation. Additionally, airfares have decreased by 44% since 2014, making travel more accessible to a larger audience.
In terms of profitability, airlines are expected to see improvements, with an average profit per passenger of $7 projected for 2025, compared to $2.25 18 months ago. Different regions show varying profitability levels, with Middle Eastern airlines leading the way with an expected profit of $24 per passenger, while U.S. and European airlines anticipate profits of $12 and $9 per passenger, respectively.
Despite the positive outlook, challenges remain for the airline industry. A shortage of new aircraft is a significant concern, as demand continues to outstrip supply, leading to delays and reliance on aging aircraft. Manufacturers like Airbus and Boeing are struggling to meet the demand, with delivery projections falling short of orders. Additionally, the industry faces challenges from climate change, geopolitical uncertainties, and rising costs, which will require airlines to adapt and innovate to remain competitive in the evolving travel landscape.
In a significant development for the aviation industry, airlines have taken delivery of 1,813 new planes. The International Air Transport Association (IATA) Director General, Willie Walsh, has indicated that at the current pace of deliveries, it would require 14 years to fulfill all outstanding aircraft orders. The demand for new planes is outstripping the production capacity of leading manufacturers such as Airbus and Boeing, resulting in delays in fulfilling orders. Consequently, airlines are forced to continue operating with aging aircraft, exacerbating the scarcity of spare parts and leading to increased maintenance downtime. The reliability of some new-generation aircraft has also come into question, further complicating the situation.
The global shortage of spare parts is contributing to the operational challenges faced by airlines, leading to higher maintenance costs and increased reliance on leasing additional aircraft to sustain operations. The rising prices of spare parts, outpacing inflation rates, are putting economic pressure on airlines. Furthermore, the inefficiencies of older aircraft models are resulting in higher carbon emissions, significantly impacting efforts to combat the climate crisis. The inability of older aircraft to utilize sustainable aviation fuels (SAF) is impeding progress towards carbon neutrality goals set for 2050. SAF, despite being a more environmentally friendly alternative to traditional kerosene, remains prohibitively expensive, with costs standing at 3.4 times higher than conventional fuel.
The aviation sector is a significant contributor to global carbon emissions, accounting for 2.5% of total emissions worldwide. Tourist-related emissions make up 9% of the global total, with a growth rate of 3.5% annually between 2009 and 2019. The increased demand for air travel is leading to higher emissions, offsetting the efficiency gains achieved through the introduction of newer aircraft and technological advancements. Notably, three countries – the United States, China, and India – are responsible for 39% of tourist emissions, with domestic travel within these nations driving the majority of the growth in emissions over the past decade.
The transition of leadership in the United States has introduced uncertainty regarding the country’s commitment to achieving net-zero emissions in the aviation sector. The Biden administration’s support for initiatives such as tax breaks for sustainable aviation fuel production under the Inflation Reduction Act highlights potential policy shifts that could impact the industry. As the demand for air travel continues to rise, airlines are facing challenges in meeting carbon reduction targets while simultaneously managing the expectations of travelers. The anticipated delay in new aircraft deliveries is expected to complicate efforts to align with emission reduction goals by 2025.
Despite the challenges faced by airlines in the passenger segment, there is a silver lining in the growth of airfreight operations. Additionally, the decline in fuel prices from $91.2 to $72.5 per barrel is offering some relief to airlines, with costs below $80 per barrel considered favorable for the industry. This trend is projected to persist into the coming year, providing a glimmer of hope amid the broader industry challenges.
This report originally
