Even with a 1.2 pc net profit margin, the return to net profitability represents a significant accomplishment
At its ongoing annual general meeting in Istanbul, the global airline industry association, International Air Transport Association (IATA) has significantly revised upwards its outlook for the industry in the current year, with more than doubling of its forecast for net profits as well as a significant enhancement of other financial parameters of the industry.
Willie Walsh
“Airline financial performance in 2023 is beating expectations. Stronger profitability is supported by several positive developments. China lifted COVID-19 restrictions earlier in the year than anticipated. Cargo revenues remain above pre-pandemic levels even though volumes have not. And, on the cost side, there is some relief. Jet fuel prices, although still high, have moderated over the first half of the year,” says Willie Walsh, IATA’s Director General.
In an update to its outlook for 2023, the International Air Transport Association (IATA) has predicted a robust strengthening of airline industry profitability. According to IATA‘s latest report, the airline industry’s net profits are predicted to increase by more than double from the prior prediction of USD 4.7 billion in December 2022 to USD 9.8 billion in 2023, or 1.2 pc net profit margin.
IATA says that airline industry operating profits are expected to reach USD 22.4 billion in 2023, much improved over the December forecast of a USD 3.2 billion operating profit. It is also more than double the USD 10.1 billion operating profit estimated for 2022. Some 4.35 billion people are expected to travel in 2023, which is closing in on the 4.54 billion who flew in 2019.
Cargo volumes are expected to be 57.8 million tonnes, which has slipped below the 61.5 million tonnes carried in 2019 with a sharp slowing of international trade volumes. Total revenues are expected to grow 9.7 pc year over year to USD 803 billion. This is the first time that industry revenues will top the USD 800 billion mark since 2019. Expense growth is expected to be contained to an 8.1 pc annual increase, adds the statement.
IATA says that even with a 1.2 pc net profit margin, the return to net profitability represents a significant accomplishment. It was achieved firstly during a period of considerable economic uncertainty. The second reason is that it comes after the biggest losses in aviation history, which totaled USD 183.3 billion dollars in net losses from 2020 to 2022 inclusively, for an average net profit margin of -11.3 pc at that time. It should be highlighted that the aviation sector entered the covid-19 crisis at the tail end of an illustrious earnings run that had an average net profit margin of 4.2 pc for the years 2015–2019.
“Economic uncertainties have not dampened the desire to travel, even as ticket prices absorbed elevated fuel costs. After deep Covid-19 losses, even a net profit margin of 1.2 pc is something to celebrate! But with airlines just making USD 2.25 per passenger on average, repairing damaged balance sheets and providing investors with sustainable returns on their capital will continue to be a challenge for many airlines,” says Walsh.
IATA says that industry revenues are expected to reach USD 803 billion in 2023, up by 9.7 pc from 2022 and down 4.1 pc from 2019. An inventory of 34.4 million flights is expected to be available in 2023, up by 24.4 pc from 2022, down 11.5 pc from 2019. Cargo revenues are expected to be USD 142.3 billion. While that is down sharply from USD 210 billion in 2021 and USD 207 billion in 2022, it is well above the USD 100 billion earned in 2019.
Jet fuel costs are expected to average USD 98.5/barrel in 2023 for a total fuel bill of USD 215 billion. That is cheaper than the USD 111.9 / barrel previously expected, as forecast in December 2022, and the average cost of USD 135.6 experienced in 2022.
“Priorities for 2023 include SAF production incentives to accelerate progress toward net zero carbon emissions, ensuring the integrity of CORSIA as the economic measure applied to international aviation, eliminating inefficiencies in air traffic management and applying global standards consistently,” says Walsh.
