Willie Walsh's Report on the State of the Global Air Transport Industry at the IATA 82nd AGM
Once again, we find ourselves in a period of significant challenges and uncertainty, with the global air transport industry facing a myriad of issues that threaten its stability and growth. The COVID-19 pandemic has left us with a fragile recovery, and now we must contend with supply chain failures, the war in Ukraine, geopolitical tensions, and shifting trade policies. The recent conflict in the Middle East has further exacerbated the situation, causing a surge in oil prices and skyrocketing jet fuel costs.
As a result, we anticipate a 70% increase in average jet fuel prices year-on-year, adding a staggering $100 billion to our collective fuel bill. This, coupled with slower growth rates, will undoubtedly impact profitability. We project that net profits will halve from $45 billion to $23 billion in 2026, and net margins will drop from 4.2% to 2.0%. These challenges are particularly daunting for airlines with balance sheets still recovering from the pandemic and those operating in the Gulf region.
Our polling reveals that 86% of travelers expect fares to align with oil prices, and 49% plan to spend more on travel this year. This bodes well for a strong northern summer peak season. However, the big question remains: how long can travelers and shippers endure the higher costs of connectivity?
Supply Chain Challenges
Airlines are grappling with higher fuel costs due to fleets that are less efficient than planned. The primary culprit is the persistent failure of the aerospace supply chain to deliver aircraft and engines on time. The order backlog exceeds 18,000, and the average fleet age has reached a record 15.2 years. Moreover, the shortage of over 5,000 fuel-efficient replacement aircraft has led to missed efficiency gains, increased lease rates, and higher maintenance costs, resulting in a minimum $11 billion loss for airlines in 2025. The current high fuel prices will only exacerbate this issue.
The engine manufacturers, despite their substantial profits, have not been held accountable for these failures. My message to them is clear: stop gouging airlines and focus on producing reliable engines that last. Allowing these issues to persist into the next decade is unacceptable to customers. While we have seen some improvements in aftermarket services through agreements like the one with CFM, more needs to be done to enhance parts availability and maintenance capacity.
Advocacy and Policy Frameworks
IATA is committed to advocating for the needs of its members and promoting safe, efficient, and sustainable air connectivity. We are strengthening our Brussels office and aligning our global team to better support our members in connecting the world. Three key areas require improved policy frameworks and government action: regulation aligned with global standards, infrastructure development, and decarbonization policies.
Global Standards and Safety
Efficient global networks rely on global standards, and our strong safety record is a testament to their importance. With one accident for every 760,000 flights, flying is the safest mode of travel. However, we must address the weaknesses that occur when global standards are not applied, particularly in taxation and passenger rights. Our position on taxation is clear: flying is an essential service and an economic catalyst that should not be taxed as a luxury.
The global best practice on aviation taxation is ICAO Doc 8632, but it is often ignored. We must raise our voice to remind governments of ICAO's authority and the positive impact it has on connectivity. Similarly, we cannot remain silent on passenger rights regulations that defy global standards. EU261, in particular, has become a poster child for bad regulation, with its penalties exceeding ticket prices and its poor drafting leading to endless litigations.
Infrastructure and Efficient Operations
Governments should recognize the importance of efficient infrastructure in reducing delays. Nearly 400 airports require slot coordination due to insufficient capacity, and legacy ATM systems struggle to handle volumes efficiently. Solving infrastructure problems is crucial for enhancing productivity and competitiveness. The airport situation is fragmented, with some governments investing in new hubs and terminals, while others struggle with politically motivated decisions that hinder growth.
The airport in Ho Chi Minh, Vietnam, and the fifth terminal in Singapore are positive examples of strategic investments. However, the Philippine government's exorbitant royalty in Manila and Lisbon's poor concession structure undermine passenger experiences and airport efficiency. Similarly, the ill-conceived transit fee in Lima and Mexico City's band-aid upgrades for the World Cup highlight the need for long-term strategic vision in infrastructure development.
The situation at London Heathrow is particularly concerning. The UK government's haste in pursuing a third runway has led to a lack of attention to basic economics, and the airport's CEO has stated that existing shareholders will refuse to invest in the development if it opens to competition. Effective economic regulation is essential to prevent such scenarios and create value for consumers, economies, airports, and airlines.
Air Traffic Management (ATM)
Getting more value from ATM is challenging, with Europe's fragmented inefficiency persisting. Decades of under-investment in the US system have resulted in a nostalgic approach, and nationalistic thinking hinders progress on smarter solutions. The high cost of fuel exacerbates these issues, and governments' hypocrisy on sustainability and competitiveness further complicates matters. Even a modest 5% efficiency improvement could save airlines $12.5 billion annually and reduce millions of tonnes of carbon.
Modern avionics in the cockpit offer part of the solution, but ATM systems cannot fully leverage their precision and flexibility. Governments have not consistently followed through on their promises to improve, and change-resistant controllers have caused disruptions. Muddling through is not an acceptable strategy, and our aircraft are ready for more efficient and less polluting operations. The case for change is stronger than ever, especially with high fuel costs.
Sustainability and Decarbonization
Five years ago, airlines committed to net-zero carbon emissions by 2050, and governments followed with the Long-Term Aspirational Goal (LTAG). However, two critical components of our net-zero roadmap are under threat: CORSIA and Sustainable Aviation Fuel (SAF) production.
CORSIA, a groundbreaking global sectoral agreement, is being undermined by a lack of alignment between governments responsible for aviation and the Paris Agreement. Airlines require between 170 and 236 million Eligible Emissions Units (EEUs) for the first phase, but only 10 countries have made EEUs available. The EU's efforts to undermine CORSIA are disingenuous and unacceptable, and we must call out such actions. The $4-5 billion in climate finance at stake is a significant incentive for governments to align internal processes.
SAF production is not growing fast enough, with this year's output reaching only 2.4 million tonnes, covering just 0.8% of airline fuel needs. The goal is 65% or 500 million tonnes by 2050. SAF projects in several countries have been canceled or downsized due to subsidies for fossil fuels. Governments must use mandates or incentives to promote SAF, with sequencing playing a crucial role. The US tax credits for production have successfully increased output, while mandates in the EU and UK have led to higher prices without creating supply.
Governments, through ICAO, have set a 5% emission reduction target through SAF by 2030, which is unrealistic given the current state of affairs. An urgent dialogue is needed to determine a realistic timeline, with a focus on action-oriented agreements. While 2050 may still be possible, a new timeline that aligns with the global energy transition is more likely. The aviation value chain and governments must work together to enable future generations to enjoy a more connected world sustainably.
Conclusion
As I pass the baton to my successor, I am confident that the next five to ten years will be exciting for the industry. The advent of AI presents new opportunities for efficiency, cost reduction, and improved customer service. However, we must address the challenges we face today, from supply chain failures to sustainability concerns. By working together, we can create a more connected and sustainable world for future generations.
