Global airlines to see mid-single digit profit growth in 2025

UBS forecasts global airline net profits to reach $35 billion in 2025, up from $32 billion, driven by projected 6.5% traffic growth. Despite a slight decline in passenger pricing due to lower fuel costs, capacity constraints stemming from aircraft delivery and staffing issues are expected to support fare growth. The report highlights generally well-capitalized airline balance sheets and attractive valuations, suggesting over 50% potential upside based on 2025 ROIC, and identifies preferred carriers across key regions.

Analysis

A UBS research report presents a constructive outlook for the global airline industry in 2025, forecasting net profits to rise to $35 billion from a $32 billion estimate for 2024. This growth is underpinned by a projected 6.5% increase in passenger traffic, outpacing an anticipated 6% growth in seat capacity. This supply-demand imbalance, driven by persistent aircraft delivery delays, maintenance limitations, and staffing challenges, is expected to create conditions that support fare growth. Despite this, UBS anticipates a modest 1% decline in passenger pricing, likely due to lower fuel costs and potentially weaker consumer demand. The report highlights that airline balance sheets are generally well-capitalized and valuations appear attractive, with a comparison of estimated 2025 return on invested capital (ROIC) to historical enterprise value to flight seat capacity (EV/FSC) suggesting a potential upside of over 50%. Regionally, capacity growth is strongest in Africa, Central America, and the Middle East, while Europe remains more constrained.

Key Decisions for Investors

• Given the positive profit outlook and attractive valuations suggesting over 50% potential upside, investors should consider increasing exposure to the airline sector, focusing on the favorable supply-demand dynamics.
• It is advisable to review specific carriers identified by UBS as preferred regional picks, including Ryanair and Lufthansa in Europe, United Airlines and Delta Airlines in North America, and Copa in Latin America.
• Investors should closely monitor key variables that could impact this thesis, particularly any acceleration in aircraft deliveries, significant shifts in fuel prices, or further signs of weakening consumer travel demand.