in Aerospace

IBA forecasts 60% increase in airline profitability in 2024

Posted 8 February 2024

Airline industry net profit per passenger is predicted to increase by almost 60% between 2023 and 2024, according to data recently revealed by aviation market intelligence and advisory company, IBA.

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In its January 2024 Market Update webinar, IBA’s experts forecast that the net profit per passenger will rise from US$6.40 in 2023 to US$10.20 in 2024 – an increase of 59.4%. This comes as airlines continue to increase capacity in 2024, with Q1 ASKs up 18% year on year from Q1 2023 according to data from IBA Insight.
 
Macroeconomic landscape - supply and demand
In an historic 2023, airlines across Europe and Asia-Pacific dominated the aircraft order books, with each region accounting for around 1,000 new commitments. This propelled total net orders to a record 3,368 aircraft - over double the figure for 2022 - and with minimal order cancellations.
 
Aircraft manufacturing rates have been increasing since the global pandemic for both widebody and narrowbody types, but it will still be a challenge to meet future targets. At the end of 2023, the two major OEMs were barely 60% of the way to reaching their mid-decade narrowbody targets, and less than 50% of the way for the widebodies. This ultimately establishes that the number of missing new build aircraft from the system will exceed 4,100 units by 2027, the impact of which will be felt throughout the lifetimes of these vintage aircraft.
 
Passenger numbers are set to increase in the coming years, with 2024 traffic projected to outpace 2019 by 4%, highlighting an overall recovery in traffic to pre-pandemic levels. This upward trend shows no signs of slowing down, with 12 trillion RPKs predicted by 2030, compared to 8.66 billion in 2019.
 
Aircraft storage is predicted to improve to 2019 levels once new technology aircraft re-enter service. 2019 saw 12% of aircraft in storage, which rose to over 70% in 2020 but dropped to 19% by the end of 2023. There are currently 712 new technology aircraft in storage. 488 of these are from the A320neo family, with 83% of these powered by GTF engines. Aircraft currently grounded are either between leases, awaiting maintenance action, or set for conversion and retirement.
 
Airline profitability
In 2023, the aviation industry experienced a more favourable year than anticipated. Despite earlier predictions, a global recession was averted. Unit costs saw notable improvement throughout the year and revenue performance remained strong, driven by substantial volume growth.
 
It is estimated that airlines from all regions improved their net profitability in 2023, with a global average net profit margin of 6% compared to 0% the year before. The Middle East was pre-eminent with an average 13% margin with North America at the other end of the scale at 4%. In the year ahead, however, net profit improvement is expected to slow, with Asia-Pacific being the only region forecast to significantly increase margins - from 5% in 2023 to 8% in 2024.
 
Airlines in Europe, the Middle East, and Latin America are using profitability to lower debts, which spiked in 2020 but have steadily fallen in the following years. While global debts have fallen from a base level of 100% in 2019 to 97% in 2023, North America’s airline debt levels remain high, sitting at 150% in 2023.
 
Airlines are continuing to expand capacity in 2024, demonstrating the continuing industry recovery since 2020. First-quarter global ASKs climbed 18% year-over-year, with Europe and the Middle East both increasing by 11%, Africa by 28%, Asia Pacific by 27% and North America by 7%.
 
Despite overall airline performance improving slightly with IBA’s Global Weighted Average increasing to 80% in 2024 from 79% in 2023, several airlines remain in IBA’s risk zone for performance and profit. This improved airline financial position has led to a decrease in airline failures compared to 2020 levels (45 carriers) but a slight increase year on year from 19 airlines in 2022 to 23 in 2023.
 
Aircraft trading activity
The aviation transaction landscape in 2024 is projected to increase year on year to close to 4,000 aircraft transactions, compared to less than 3,500 in 2023. This forecast growth is fuelled by both lessor M&A and the increased trading of leased aircraft. IBA expects to see operators continuing to extend leases and purchase aircraft at the point of lease ends, potentially impacting the number of aircraft available in the secondary market.
 
Values and lease rates
Value and lease rates are expected to continue to rise strongly in 2024. The 737 MAX 8 and A320neo are now poised on equal ground, with IBA forecasting new aircraft lease rates to reach US$ 410,000 per month for both models by July 2024.
 
Meanwhile, the market values of new widebody aircraft have reached 2019 levels, with further growth expected in 2024, spearheaded by the A350-900 and A330neo which are forecast by IBA to grow by 5.8% and 5.3% respectively in the 12 months to July 2024.

Mid-life narrowbody values and lease rates rose sharply in 2023, with further gains forecast in 2024. The market value of the A321-200 is forecast to increase by 25.5% in the 12 months to July 2024 and its lease rate is to grow 31.1% over the same period.
 
Mid-life widebody market values are expected to double from recent lows with the A330-300 value forecast to grow by 107.5% in the 12 months to July 2024, while lease rates are also posting a strong recovery and are forecast to exceed 2019 levels by mid-2024.


 

 

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