Airlines Set for a Record-Breaking 2024, But Interest Rates Remain a Concern

After years of challenges since the COVID-19 pandemic, the airline sector returned to profitability in 2023, with net profit projected to reach $23.3 billion on a 2.6% margin. According to the International Air Transport Association (IATA), the industry is predicted to carry this momentum into 2024 and make it a record-breaking year in revenue and traveler numbers. However, the high cost of capital in the current macro environment will likely continue to be a challenge.

Number of Travelers Expected to Hit Record High in 2024

According to a report by a trade association of the world’s airlines, the industry is slated for a record-breaking 2024 year.

Notably, airline profits are expected to stabilize next year as continued growth in post-pandemic travel activity is offset by elevated costs of capital and capacity constraints, industry group IATA stated on Wednesday. 

The group’s findings revealed that the global airline sector has rebounded mainly from the COVID-19 pandemic amid surging demand across North America, Europe, and the Middle East markets. 

Consequently, the airline sector returned to profitability in 2023, with net profit estimated to hit $23.3 billion on a 2.6% margin. These metrics are expected to increase to $25.7 billion and 2.7% in 2024, respectively, according to IATA. 

Further, revenues are projected to hit a new all-time high of $964 billion, while the number of travelers globally is set to reach 4.7 billion – also a historic level. This compares with 4.5 billion travelers in 2019, before the Covid-19 pandemic. 

IATA also said that many countries behind in travel recovery in recent years are expected to reach profitability again in 2024. This includes China, where international travel remains 40% below pre-pandemic levels. 

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IATA Concerned About Cost of Capital Amid High-Interest Rates

Although revenues are anticipated to hit record highs, IATA raised concerns about the high cost of capital driven by elevated interest rates. 

“Industry profits must be put into proper perspective. On average airlines will retain just $5.45 for every passenger carried. That’s about enough to buy a basic grande latte at a London Starbucks.”

– IATA’s head Willie Walsh said.

The market is now mainly pricing that the current Fed funds target range of 5.25-5.5% represents a peak, with first interest rate cuts expected in 2024. This sentiment increased optimism among stock and crypto investors, pushing S&P 500 and Bitcoin to multi-month highs. 

Meanwhile, IATA warned that further global instability, including wars in Gaza and Ukraine, could also negatively impact the airline sector, particularly as they continue to drive up oil prices. 

Do you think the travel industry and airlines can scale new heights next year? Let us know in the comments below.