Airlines executives are expecting record demand this summer, despite persistent inflation and safety concerns, putting pressure on production problems.
“The global airline industry is facing a summer squeeze, with travel demand expected to surpass pre-pandemic levels while aircraft deliveries drop sharply due to production problems at Boeing and Airbus,” reported Reuters in April. “Air carriers are spending billions on repairs to keep flying older, less fuel-efficient jets, and paying a premium to secure aircraft from lessors. But some carriers are still being forced to trim their schedules to cope with the lack of available planes.”
At the same time, the number of travelers globally is set to hit historic levels according to the International Air Transport Association (IATA), with 4.7 billion people expected to travel in 2024 compared with 4.5 billion in 2019.
CNBC reported in April that air travel demand has been resilient despite persistent inflation and a spate of high-profile safety issues that have sparked congressional hearings.
“Airlines, which make the bulk of their money in the spring and summer, have also been grappling with higher costs of fuel and labor, with fresh contracts giving pilots and other workers large raises after years of stagnant pay,” said CNBC. “Nonetheless, demand for international trips and rebounding corporate travel have helped boost global carriers.”
Airlines Expect to Carry Record Numbers this Summer
United Airlines Chief Commercial Officer Andrew Nocella said in an earnings call that United expected “as an airline and an industry” to carry record numbers of travelers this summer.
Delta CEO Ed Bastian, in an earnings call, agreed: “Demand continues to be strong, and we see a record spring and summer travel season with our 11 highest sales days in our history all occurring this calendar year.”
CNBC reported that Delta, United, and American have all announced upgraded first and business-class cabins as well as more and larger lounges to accommodate the growing number of travelers willing to pay for higher-priced tickets, elite status, and high-fee rewards credit cards.
“We can expect a strong performance from airlines throughout the summer with some particularly high airfare," John Grant, senior analyst at travel data firm OAG,” told Reuters.
U.S. Carriers Will Receive One-Third Fewer Aircraft than Planned
Reuters reported that U.S. Carriers will receive 32 percent fewer aircraft than planned a year ago because several airlines depend on Boeing’s 737 Max planes which have been halted in production since a January mid-air panel blowout.
“Boeing is reeling from a sprawling crisis that erupted after the Jan. 5 Alaska Airlines blowout. Regulators have put a cap on production of the 737 MAX, but the company is not hitting even that level,” reported Reuters.
Meanwhile, as many as 650 Airbus A320neo jets could be grounded in the first half of 2024 for inspections to deal with a flaw with RTX Corp’s Pratt & Whitney engines.
“In Europe, low-cost airline Ryanair has cut some routes. In the United States, United and Southwest have cut back flying and adjusted hiring and staffing plans,” said Reuters.
On the flip side, the shortage of new planes has led to a boom in the aircraft leasing market with lease rates hitting the highest mark since mid-2008 at $400,000 per month for new Airbus A320-200neo and Boeing 737-8 Max aircraft.
IATA Predicts Record Airline Travel in 2024
IATA survey data shows that one-third of respondents say they are traveling more than they did before the pandemic, while about half say their travel is the same. Just 18 percent say they are traveling less.
“Looking ahead, 44 percent say that they will travel more in the next 12 months than in the previous 12 months. Only 7 percent say they will travel less and 48 percent expect to maintain similar levels of travel in the coming 12 months as in the previous 12 months,” said an IATA release.
Outlook highlights for 2024 according to IATA:
- Airline industry net profits are expected to reach $25.7 billion in 2024 (2.7 percent net profit margin). That will be a slight improvement over 2023 which is expected to show a $23.3 billion net profit (2.6 percent net profit margin).
- In both 2023 and 2024 the return on invested capital will lag the cost of capital by 4 percent, as interest rates around the world have risen in response to the sharp inflationary impulse.
- Airline industry operating profits are expected to reach $49.3 billion in 2024 from $40.7 billion in 2023.
- Total revenues in 2024 are expected to grow 7.6 percent year over year to a record $964 billion.
- Expense growth is expected to be slightly lower at 6.9 percent for a total of $914 billion.
- Some 4.7 billion people are expected to travel in 2024, a historic high that exceeds the pre-pandemic level of 4.5 billion recorded in 2019.
- Cargo volumes are expected to be 58 and 61 million tons in 2023 and 2024, respectively.
“Considering the major losses of recent years, the $25.7 billion net profit expected in 2024 is a tribute to aviation’s resilience. People love to travel and that has helped airlines to come roaring back to pre-pandemic levels of connectivity. The speed of the recovery has been extraordinary, yet it also appears that the pandemic has cost aviation about four years of growth. From 2024 the outlook indicates that we can expect more normal growth patterns for both passenger and cargo,” said Willie Walsh, IATA’s Director General.
Risks That Could Ground Summer Travel Demand
Risks that could hurt summer air travel, according to IATA:
- Global Economic developments: Easing inflation, low unemployment rates, and strong demand for travel are all positive developments. Nonetheless, economic strains could arise.
- War: The operational impacts of the Ukraine war and the Israel-Hamas war have been largely limited to re-routings due to airspace closures. On the cost side, the conflicts have pushed up oil prices which is impacting airlines globally. An unexpected peace in either or both cases would bring benefits to the industry, but any escalation could produce a radically different global economic scenario to which aviation would not be immune.
- Supply Chains: Supply chain issues continue to impact global trade and business. Airlines have been directly impacted by unforeseen maintenance issues on some aircraft/engine types as well as delays in the delivery of aircraft parts and of aircraft, limiting capacity expansion and fleet renewal.
- Regulatory Risk: On the regulatory front, airlines could face rising costs of compliance, and additional costs pertaining to passenger rights regimes, regional environment initiatives, and accessibility requirements.
North American Travel Forecast is Optimistic
IATA said the airline travel outlook was particularly strong for North America.
“North America remains the standout region in terms of financial performance. It was the first market to return to profitability in 2022 and built on this performance in 2023 by delivering efficiencies, particularly in high passenger load factors. Consumer spending has remained solid, despite cost-of-living pressures, and the demand for air travel remains robust and is expected to outpace growth in capacity into 2024,” said IATA.
IATA said that a recent opinion poll revealed that 97 percent of travelers expressed satisfaction with their travel and 88 percent agreed that air travel makes their lives better and 80 percent agreed that air travel is good value for money.
“Passengers are counting on a safe, sustainable, efficient and profitable airline industry,” said IATA.
