Global air travel activity continued to grow in 2024, although profits declined slightly compared with the strong performance posted in 2023. In North America and Europe in particular, profitability was affected by rising operating costs, a decline in passenger yields, and supply chain issues. They expect a modest improvement on the margin front in 2025 due to lower fuel prices, a normalisation in nonfuel cost increases, and continued growth in demand for air travel, supporting passenger yields.
That said, there are still uncertainties and challenges for the sector, including (i) an uncertain geopolitical environment, (ii) capacity growth constraints, and (iii) an ageing global aircraft fleet, which affects fuel efficiency and maintenance costs. As informed by a report in Morningstar DBRS
Key Highlights
- Global air travel activity is expected to continue its growth trajectory in 2025, and operating margins are likely to improve due to decline in fuel prices along with normalisation in nonfuel cost increases, particularly labour costs.
- Aircraft delivery delays are expected to continue, which could affect airlines’ growth plans as well as result in ageing fleet requiring higher maintenance and delaying fuel and carbon efficiency gains.
- Geopolitics represents major uncertainty for the sector, where any escalation in current conflicts and/or new conflicts in other geographies could significantly affect global air travel.
- Decarbonisation efforts are likely to continue for airlines with Europe’s SAF mandate kicking off, but we expect some challenges for SAF production outlook in the United States under the Trump administration.
Rohit Kumar, CFA, Assistant Vice President, Corporate Ratings, Diversified Industries said: “Overall, we expect the sector’s credit risk profile to remain Stable with some improvement in credit metrics in 2025. However, any major deterioration in the geopolitical environment could worsen the sector’s credit profile.
