Air Travel Industry Braces for Slower Growth Amid Trade Tensions
Passenger traffic decelerates amid escalating trade disputes
The global passenger air transport market is facing a growth lull, as per the International Air Transport Association (IATA). At their annual conference in New Delhi, IATA downsized its predictions, anticipating a significantly slower expansion.
Initially, IATA had projected 5.22 billion passengers in 2023, but now they've amended the forecast to 4.99 billion—still a record high, yet falling short of expectations. The industry will still dodge the $1 trillion revenue barrier, now projected at $979 billion, marking a 1.3% increase from last year. Profits are anticipated at $36 billion ($32.4 billion in 2022), but this figure is $600 million less than the initial December projections.
Willie Walsh, IATA's Director-General, echoed concerns about the limited profits, stating that the average per-passenger segment earnings amounted to $7.20—a wafer-thin safety net against future fluctuations or taxes, as the sector recovers from the pandemic.
Conflicting trade policies and a weakening demand are major factors chipping away at growth prospects. The US customs policy under President Trump is causing unease among consumers in the United States, potentially leading to an economic crisis. Moreover, delays in aircraft deliveries are stifling growth and boosting costs, as ageing aircraft with higher fuel consumption and maintenance requirements are extended in service. Walsh voiced his discontent with the delays caused by aircraft manufacturers Boeing and Airbus, labelling them "completely unacceptable" and provoking frustration across the industry.
Enrichment Insights:
- IATA expects global passenger traffic growth to decelerate to 5.8% year-on-year in 2025, down from 10.6% in 2024.
- The slowdown in air cargo growth is forecasted to 0.7%, in comparison to 11.3% in 2024, primarily due to reduced GDP growth and trade restrictions.
- IATA projects global airline revenues to reach $979 billion in 2025, down from a previous forecast of $1 trillion, reflecting the impact of trade-related economic headwinds and reduced cargo demand.
- Despite the challenges, profitability is still anticipated, with a net profit of $36 billion, which is $3.6 billion higher than in 2024 but below December projections.
- Cargo revenues are expected to be $142 billion, down 4.7% from 2024, with the cargo yield also forecasted to decline by 5.2% due to slower demand growth.
- Industry expenses are projected to rise by 1.0% to $913 billion in 2025, notably including the cost of carbon offsetting ($1 billion) and supply chain constraints due to aircraft backlog (over 17,000 aircraft, implying 14-year wait times).
- IATA has warned that trade barriers and tariffs worsen supply chain difficulties and potentially lead to further economic damage if more countries exit aircraft tariff exemptions.
The air travel industry's slow growth, as reported by IATA, is not only influenced by the industry's own factors like delays in aircraft deliveries, but also external factors such as trade policies, including those implemented in the United States. Moreover, the employment sector within the aerospace industry may encounter increased costs due to the challenges faced by leading manufacturers like Boeing and Airbus, causing significant delays in aircraft production.
The growth of the global passenger air transport market is being influenced by numerous factors, ranging from industry-specific issues like aircraft delivery delays to external elements like trade tensions and policies. Additionally, the ongoing concerns within the aerospace industry about employment and finance could potentially be amplified by the issues facing manufacturers like Boeing and Airbus.
