As the aviation sector soars towards a historic milestone of $1tn in global revenue by 2025, the industry's top players and stakeholders remain acutely aware of the headwinds they face. Willie Walsh, Director General of the International Air Travel Association (IATA), has forecasted a brighter year ahead but underscores the fragility underpinning this progress. Persistent supply chain bottlenecks, fluctuating fuel costs, and geopolitical uncertainties continue to weigh heavily on an industry striving for both growth and resilience.
Despite the headline-grabbing $1tn revenue projection, airlines operate on some of the thinnest profit margins in the commercial world. IATA estimates the global average profit per passenger will hover around $7 — a figure that highlights the precarious balancing act airlines must perform. For comparison, industries like software or pharmaceuticals often enjoy profit margins exceeding 20%, whereas aviation barely scrapes by with single-digit percentages.
To put this into perspective, consider the complex and interconnected web of costs involved in running an airline. Fuel, which often accounts for 20-30% of operating expenses, has seen volatility due to geopolitical events such as conflict. Coupled with rising airport fees and the ongoing challenges of modernising air traffic management, these expenses threaten to erode profitability even further. Add to this the looming costs of decarbonization—an existential priority for the industry—and it becomes clear why profit margins remain under such pressure.
On a more optimistic note, passenger numbers are expected to reach an all-time high of 5bn by 2025. However, this uptick in demand places immense pressure on infrastructure. Airports, air traffic controllers, and the supply chain must scale up to accommodate this surge, yet many regions face bottlenecks that could slow down any potential progress.
Air traffic management systems in particular require urgent investment and reform. Europe’s fragmented system, for instance, costs airlines billions annually in inefficiencies, delays, and excess fuel burn. Modernising these systems would not only save costs but also significantly reduce emissions, aligning with the industry’s broader sustainability goals.
Fuel prices have long been a volatile factor in aviation’s financial calculus. Walsh warns that geopolitical risks, particularly the conflict in Ukraine, could continue to exacerbate price instability. The global reliance on jet fuel means even minor disruptions in supply chains can ripple across the industry. Airlines have increasingly turned to hedging strategies to mitigate these risks, but such measures can only do so much in an environment of prolonged instability.
Furthermore, geopolitical shifts extend beyond fuel. IATA’s chief also flagged the incoming Trump administration in the United States as a potential wildcard. A reversal or weakening of climate commitments under a new US administration could have implications for the industry’s decarbonisation agenda. As airlines strive to meet ambitious net-zero targets by 2050, consistent global policies and support are critical. The concern, at least from IATA’s side, is a fragmented approach risks undermining progress and creating an uneven playing field.
Meeting net-zero targets is arguably the aviation industry’s most significant challenge. Transitioning to sustainable aviation fuels (SAFs), investing in next-generation aircraft, and exploring emerging technologies like hydrogen propulsion all require substantial capital. For an industry already grappling with tight margins, the financial burden of decarbonisation is daunting. Yet, the stakes are too high to ignore. Public and regulatory pressure is mounting, with consumers increasingly factoring environmental considerations into their travel decisions. Airlines that fail to adapt risk falling behind in a marketplace that increasingly values sustainability. Walsh’s remarks serve as a clarion call for collaboration across governments, manufacturers, and airlines to share the costs and accelerate progress.
The global supply chain, still reeling from multiple years’ worth of disruptions of Covid-19, presents another significant challenge. From aircraft production delays to spare parts shortages, these issues ripple across operations, affecting everything from scheduling to fleet expansion plans. Walsh’s comments underscore the need for greater resilience and diversification in supply chains to prevent similar vulnerabilities in the future.
The industry has already seen how these disruptions can play out. Boeing and Airbus, the world’s largest aircraft manufacturers, have faced immense delays in delivering new aircraft due to supply chain bottlenecks. These delays hinder airlines’ ability to modernise fleets and capitalize on the latest fuel-efficient technologies, compounding financial and environmental challenges.
Despite the challenges, Walsh’s outlook remains cautiously optimistic. The aviation industry has a proven track record of resilience, having weathered global crises from economic recessions to the pandemic. The projected $1tn revenue milestone is a testament to the sector’s enduring relevance and adaptability.
However, achieving sustainable growth will require a multi-faceted approach. Stakeholders must prioritize investments in infrastructure and technology while advocating for policy frameworks that support long-term goals. Collaboration—whether in the form of public-private partnerships or alliances across borders—will be key to navigating the complexities of this dynamic industry.
Essentially, as airlines prepare to welcome 5bn passengers in 2025, they do so against a backdrop of both opportunity and uncertainty. The path to recovery and growth is laden with challenges, from geopolitical risks and fuel price volatility to the existential imperative of decarbonisation. Yet, as Willie Walsh’s insights suggest, the industry’s resilience and innovations offer hope.
The author is an aviation analyst. X handle @AlexInAir.
