Canada-based global credit ratings agency Morningstar DBRS (the world’s fourth largest credit ratings agency) has forecast that the global airline sector will continue to see growth this year, although there will be challenges. The credit outlook for 2025 for the sector as a whole is stable.

Global air passenger demand will continue to grow through 2025. The agency cited the forecast by the International Air Transport Association that global air passenger demand will grow by 8% this year. The slowest growth, 3%, will be in North America, and the fastest growth, 12%, will be in the Asia-Pacific region.

“We 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,” stated the agency in its commentary. “In 2025, we expect margins to improve from current levels as labour-cost increases should remain contained as most airlines have already negotiated contracts with employee unions, while maintenance costs might remain elevated due to ageing fleet[s]. Fuel costs are expected to decline somewhat further as jet fuel prices decline in line with our crude oil forecasts, where we expect 2025 average [West Texas Intermediate/North Sea] Brent prices to be between 13% and 15% lower than in 2024.”       

The sector does, however, face three major challenges. In the agency’s order, these are an “uncertain” geopolitical environment; constraints on growing airline capacity; and ageing airliner fleets (increasing maintenance costs and hampering airlines’ ability to improve fuel efficiency).

“Geopolitical conflicts have affected the global airline sector in recent years with Europe being particularly affected,” points out the agency. “Overall, the impact from these conflicts currently remains manageable. However, any escalation in the current conflicts and/or new conflicts in other geographies could significantly affect global air travel and may also affect fuel prices, which are a major cost for airlines.”

Airlines are being hampered in expanding their capacity by delays in the deliveries of new airliners by the major manufacturers. Boeing’s problems are “significant” and on “multiple fronts”, while Airbus did not achieve its delivery target for last year, because of challenges in its supply chain.

These delays in the delivery of the latest-generation airliners are forcing airlines to continue operating older, less-efficient, aircraft for longer than planned. This increases their fuel costs and also delays the achievement of their hoped-for carbon emission reductions (Phase 1 of the internationally-agreed Carbon Offsetting and Reduction Scheme for International Aviation, better known as CORSIA, started last year and would continue through this year).