As revenue hits record levels, profit margins remain thin for airlines

From Spring Break to Memorial Day Weekend, travel headlines are packed with information about record-breaking travel seasons. And while airlines may be headed for record-breaking revenue, that hasn’t necessarily transitioned to the profit margins business leaders would like to see.

The International Air Transport Association has reported several times about profit and revenue forecasts for this summer travel season. The latest projections predict a revenue forecast for the airline industry to hit $996 billion this year. That would be a new record as a 9.7 percent increase over 2023. To go along with that number, profits are expected to hit $30.5 billion, which is an increase from the $25.7 billion that was reported in December to close out 2023.

While these numbers look fantastic, checking under the hood shows that expenses are also increasing, cutting into the profit margins airlines should be enjoying. According to that same IATA report, expenses are expected to hit $936 billion which is a 9.4 percent increase compared to 2023, and a record high.

“The airline industry is on the path to sustainable profits, but there is a big gap still to cover. A 5.7 percent return on invested capital is well below the cost of capital, which is over 9 percent,” said IATA Director General, Willie Walsh. “And earning just $6.14 per passenger is an indication of just how thin our profits are – barely enough for a coffee in many parts of the world.”

When businesses are complaining about not buying able to “buy a cup of coffee,” there’s a bigger discourse to come. While this doesn’t immediately mean price increases for tickets, travelers can look toward the ever-shifting policies that airlines are putting into place for additional costs across aspects of travel such as checked bags and seat selection.

It will be interesting to watch how airlines attempt to cut costs or take other steps to increase profit margins. Regardless of the steps selected, these moments usually do not bode in the favor of the customers looking to take to the friendly skies.