Global Airline Industry Outlook 2025: Resilience Amid Challenges

The International Air Transport Association (IATA) unveiled its updated financial outlook for the global airline industry at its Annual General Meeting in New Delhi on June 2, 2025, projecting a slight improvement in profitability despite significant economic and geopolitical headwinds. With net profits expected to reach $36 billion and record-high revenues of $979 billion, the industry demonstrates resilience, driven by lower jet fuel prices and sustained passenger demand. However, challenges such as supply chain disruptions, trade tensions, and the high cost of sustainable aviation fuel (SAF) pose risks to long-term growth and the industry’s net-zero CO2 emissions goal by 2050.

Financial Performance: A Modest Uptick

The IATA forecast highlights a strengthening of airline profitability in 2025, with key metrics showing improvement over 2024, though slightly below earlier projections from December 2024:

• Net Profits: Expected to reach $36.0 billion, up from $32.4 billion in 2024 but below the previously projected $36.6 billion. The net profit margin will improve to 3.7% from 3.4%, though it remains slim at $7.20 per passenger, half the average profitability across all industries.

• Operating Profits: Forecasted at $66.0 billion, up from $61.9 billion in 2024 but down from the earlier estimate of $67.5 billion.

• Revenues: Total revenues are set to hit a record $979 billion, a 1.3% increase from 2024, driven by passenger revenues of $693 billion (+1.6%) and ancillary revenues of $144 billion (+6.7%). However, this falls short of the previously projected $1 trillion.

• Expenses: Total expenses will rise to $913 billion (+1.0%), moderated by a significant drop in jet fuel costs to $236 billion, accounting for 25.8% of operating costs, down from $261 billion in 2024 due to a 13% reduction in jet fuel prices to $86 per barrel.

The industry’s return on invested capital is expected to improve to 6.7% from 6.6%, reflecting operational efficiencies despite supply chain constraints.

Demand and Capacity: Sustained Growth

Global air travel demand remains robust, with 4.99 billion travelers projected for 2025, a 4% increase from 2024, though below the earlier estimate of 5.22 billion. Revenue Passenger Kilometers (RPK) are expected to grow by 5.8%, supported by a record-high passenger load factor of 84.0%. IATA’s April 2025 polling data indicates strong consumer intent, with 40% of respondents planning to travel more and 47% expecting to spend more on travel in the next 12 months. Notably, 68% of business travelers anticipate increased travel despite trade tensions.

Cargo volumes, however, face headwinds, with 69 million tonnes projected for 2025 (+0.6% from 2024), down from the earlier forecast of 72.5 million tonnes. Cargo revenues are expected to decline to $142 billion (-4.7%), driven by a 5.2% drop in cargo yields due to slower GDP growth and trade-dampening protectionist measures.

Key Drivers and Challenges

Positive Drivers

• Lower Jet Fuel Prices: A 13% reduction in jet fuel prices to $86 per barrel is a major boon, saving airlines $25 billion compared to 2024. Minimal fuel hedging ensures airlines directly benefit from this decline.

• Strong Employment and Moderate Inflation: These factors support sustained passenger demand, even as global GDP growth slows from 3.3% in 2024 to 2.5% in 2025.

• Operational Efficiency: High passenger load factors and fleet optimization help offset supply chain challenges.

Challenges

• Supply Chain Disruptions: An aircraft backlog of over 17,000, with wait times up to 14 years, and engine reliability issues (e.g., PW1000G engines grounding 3.8% of the fleet) are driving up leasing costs and increasing the average fleet age to 15 years. Only 1,692 aircraft deliveries are expected in 2025, 26% below prior estimates.

• Trade Tensions: Tariffs and protectionist policies, particularly under the evolving Trump Administration, are dampening cargo demand and could impact business travel.

• Sustainable Aviation Fuel (SAF): SAF production is set to double to 2 million tonnes in 2025, but at 0.7% of total fuel use, it remains insufficient for the net-zero 2050 goal. SAF costs, 4.2 times higher than jet fuel, add $4.4 billion to fuel expenses, exacerbated by European suppliers’ compliance fees.

• Geopolitical Risks: Ongoing conflicts, such as the Russia-Ukraine war, and potential escalations could disrupt routes and airspace, while fragmentation of global standards may increase regulatory costs.

Recent news underscores these challenges. Reuters reported IATA’s concerns about slow SAF production, with Director General Willie Walsh criticizing fuel suppliers for profiteering on limited supplies. Additionally, CNBC highlighted a faltering travel demand due to declining consumer confidence, bad weather, and a late Easter in 2025, prompting some U.S. airlines to cut outlooks.

Regional Insights

All regions are expected to remain profitable in 2025, with varying performance:

• North America: Net profits of $12.7 billion (4.0% margin, $11.1 per passenger) are the highest absolute profits, but growth is limited by a U.S. economic slowdown, pilot shortages, and engine issues. RPK growth is modest at 0.4%.

• Europe: Profits of $11.3 billion (4.3% margin, $8.9 per passenger) are driven by strong low-cost carrier demand and open skies agreements with North Africa. RPK growth is robust at 6.0%.

• Asia Pacific: Profits of $4.9 billion (1.9% margin, $2.6 per passenger) benefit from relaxed visa policies in countries like China, with RPK growth at 9.0%, the highest globally.

• Latin America: The only region with declining profits at $1.1 billion (2.4% margin, $3.4 per passenger), impacted by weak currencies and Brazil’s proposed 26.5% VAT on tickets. RPK growth is 5.8%.

• Middle East: The highest per-passenger profit at $6.2 billion (8.7% margin, $27.2 per passenger), supported by strong economic performance, though capacity is constrained by aircraft delivery delays. RPK growth is 6.4%.

• Africa: Profits remain low at $0.2 billion (1.1% margin, $1.3 per passenger) due to high operational costs and foreign currency shortages. RPK growth is strong at 8.0%.