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It is no longer news that the airlines space was one of the hardest-hit corners during the pandemic. Airlines incurred huge losses in 2020 and 2021 on dwindling passenger revenues. The situation started to improve in 2022 when the loss was narrower.

Airlines across the globe are set to end the current year on a profitable note with an improvement in air travel demand. Per the International Air Transport Association (IATA), the global airline industry is expected to end 2023 with a net profit of $23.3 billion (net profit margin of 2.6%). Cargo volumes in the current year are expected to be $58 million.

The scenario with respect to air travel demand is expected to improve further in 2024. Per IATA, the net profit of airlines across the globe is likely to be $25.7 billion in 2024, reflecting a net profit margin of 2.7%. The top line next year is anticipated to be $964 billion, implying a 7.6% increase from 2023’s estimate.

With people again taking to the skies, the greatest driver of top-line improvement is passenger revenues. Per IATA, 4.7 billion people are expected to travel in 2024, which is even higher than the 2019 (pre-pandemic) reading of $4.5 billion. Passenger revenues for the next year are anticipated to be $717 billion. The 2024 projection is higher than the current-year estimate of $642 billion despite economic uncertainties.

Cargo revenues in 2024 are expected to be $111 billion, which is lower than the current-year projection but still $10 billion higher than 2019 actuals. Cargo volumes are expected to be $61 billion in 2024.

Even though total costs next year are projected to be 6.9% higher than the current-year projection, mainly due to high fuel and infrastructure costs, expense growth is likely to be lower. Passenger yields in 2024 are expected to improve 1.8% compared to 2023, driven by high air travel demand and limited capacity.

Per IATA, fuel price per barrel is expected to average $113.8/barrel in 2024. The total fuel bill next year is expected to be $281 billion. Airlines are expected to consume 99 billion gallons of fuel in 2024. IATA anticipates total non-fuel costs to be $633 billion in 2024.

On a region-wise basis, North American carriers that include the likes of Delta Air Lines (DAL - Free Report), American Airlines (AAL - Free Report), and United Airlines (UAL - Free Report) are expected to reap profits of $14.4 billion next year, slightly higher than the current-year expectation of $14.3 billion.

Reflecting the improved air travel demand scenario, passenger demand next year is likely to grow 6.3%, higher than the anticipated capacity growth of 6%. The stocks mentioned above all currently carry a Zacks Rank #3 (Hold) each.

To highlight the improving air travel demand scenario, let’s recapitulate the third-quarter 2023 results of the North American carriers mentioned above.

Delta's earnings (excluding 31 cents from non-recurring items) of $2.03 per share beat the Zacks Consensus Estimate of $1.92 and improved 35% on a year-over-year basis. Revenues of $15,488 million beat the Zacks Consensus Estimate of $15,290.4 million and increased 11% on a year-over-year basis, driven by higher air travel demand.

Passenger revenues, accounting for 84.7% of total revenues, increased 14% year-over-year to $13,119 million. Domestic passenger revenues in the third quarter increased 6% year-over-year. Passenger revenues also improved on the international front.

American Airlines’ earnings (excluding $1.21 from non-recurring items) of 38 cents per share easily beat the Zacks Consensus Estimate of 26 cents. Results were aided by higher revenues driven by the buoyant air travel demand scenario.

Operating revenues of $13,482 million increased year-over-year. Passenger revenues, accounting for 92.1% of the top line, increased to $12,421 million from $12,396 million a year ago.

United Airlines’ earnings per share (excluding 23 cents from non-recurring items) of $3.65 outpaced the Zacks Consensus Estimate of $3.40 and improved 29.9% year-over-year.

Operating revenues of $14,484 million beat the Zacks Consensus Estimate of $14,441.8 million. The top line increased 12.5% year-over-year due to upbeat air travel demand. This was driven by a 14.6% rise in passenger revenues (accounting for 92.5% of the top line) to $13,349 million.

Coming back to IATA’s forecast, carriers in Latin America are expected to incur a loss of $0.4 billion in 2024. Carriers in the Middle East and the Asia Pacific are expected to reap profits of $3.1 billion and $1.1 billion, respectively, in 2024.

European carriers, which include the likes of Ryanair Holdings (RYAAY - Free Report), are expected to be significantly profitable in 2024 owing to improved air travel demand. The profitability is expected to be $7.9 billion as opposed to the anticipated current-year net profits of $7.7 billion. In 2024, passenger demand is expected to grow 10.5%, outpacing capacity growth of 8.8%.

Reflecting the improved demand scenario, Ryanair’s profit after tax was EUR2.18 billion in the first half of fiscal 2024, up 59% year-over-year. Scheduled revenues in the same period increased 37% to EUR6.1 billion. Traffic increased 11% to 105.4 million. Ryanair expects fiscal 2024 traffic of 183.5 million. The guidance indicates 9% growth from the year-ago levels.

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