Airlines Struggle with Skewed Value Chain; Global Profit Margins Never Crossed 5%, Says IATA Economist

New Delhi: Airlines around the world continue to face major profitability challenges due to a skewed value chain, where the bulk of earnings are concentrated among other players in the aviation ecosystem — leaving carriers with razor-thin margins, according to Marie Owens Thomsen, Chief Economist and Senior Vice President for Sustainability at the International Air Transport Association (IATA).

Speaking at an event in New Delhi earlier this week, Thomsen shared sobering insights into the structural problems plaguing the aviation industry. Despite its critical role in global transportation and commerce, the airline industry has never achieved a net profit margin above 5%, she said.

“Nobody ever set out to deliberately create such an imbalanced value chain, but that's the unfortunate outcome,” Thomsen noted. “Globally, airlines have never managed to earn a profit margin in excess of five per cent.”

⚖️ The Skewed Value Chain: Where Profits Flow Elsewhere

According to Thomsen, the imbalance arises from a variety of systemic factors — including legacy policies, oligopolistic pricing power of aircraft manufacturers, and the dominance of oil companies in the fuel supply chain.

“Every other stakeholder in the value chain earns more than airlines,” she explained. “Aircraft makers operate in a highly consolidated market, giving them immense pricing power. Similarly, oil companies enjoy a stronghold over jet fuel pricing. Meanwhile, airlines are squeezed in between, often operating in hyper-competitive environments.”

In particular, she highlighted the situation in India, one of the fastest-growing civil aviation markets in the world. Despite surging demand, carriers face intense price sensitivity from consumers, leaving them with little room to raise fares and improve margins.

“In countries like India, customers largely base their airline choice on price. That further tightens the squeeze on carriers,” she added.

💡 Hope for Reform: India as a Model

Thomsen expressed optimism that if the Indian government were to take proactive steps to address the imbalance in the aviation value chain, it could become a global model for structural reform.

“If India succeeds in creating a more balanced system, it will certainly be an example for other nations to follow,” she said.

📉 Global Industry Outlook

Despite ongoing challenges, IATA remains cautiously optimistic for 2025. The association has projected a net profit of USD 36 billion for airlines worldwide, translating to a profit margin of 3.7% — a figure still below the 5% benchmark that the industry has struggled to reach historically.

🧾 Summary:

Airlines globally face a skewed value chain, with slim profits.

Profit margin has never exceeded 5% in aviation history, says IATA.

Aircraft manufacturers and oil suppliers dominate profits, while airlines are squeezed.

India’s competitive pricing environment adds to pressure on carriers.

Reform in India’s aviation value chain could set a global precedent.

IATA forecasts 3.7% profit margin and USD 36 billion in net profits for airlines in 2025.