IATA has predicted that the airlines would begin making profit as early as next year, albeit marginally
The global airline industry body, International Air Transport Association (IATA), expects a return to profitability for the global airline industry in 2023 as airlines continue to cut losses stemming from the effects of the Covid-19 pandemic to their business in 2022.
While at the end of 2020 and in 2021, when the airlines reported worst-ever losses reaching USD 137.7 billion in 2020, most airline bosses and civil aviation experts were predicting a long road to recovery, extending beyond 2024, before the airlines could comeback into the black.
However, in its new outlook report, IATA has predicted that the airlines would begin making profit as early as next year, albeit marginally. IATA says that in 2023, airlines are expected to post a small net profit of USD 4.7 billion, a 0.6 pc net profit margin. It is the first profit since 2019 when industry net profits were USD 26.4 billion, with a 3.1 pc net profit margin.
IATA says that in 2022, airline net losses are expected to be USD 6.9 billion, which is an improvement on the USD 9.7 billion loss for 2022 in IATA’s June outlook. This is significantly better than losses of USD 42 billion and USD 137.7 billion that were realised in 2021 and 2020 respectively, IATA adds.
“Resilience has been the hallmark for airlines in the Covid-19 crisis. As we look to 2023, the financial recovery will take shape with a first industry profit since 2019. That is a great achievement considering the scale of the financial and economic damage caused by government imposed pandemic restrictions. But a USD 4.7 billion profit on industry revenues of USD 779 billion also illustrates that there is much more ground to cover to put the global industry on a solid financial footing. Many airlines are sufficiently profitable to attract the capital needed to drive the industry forward as it decarbonises. But many others are struggling for a variety of reasons. These include onerous regulation, high costs, inconsistent government policies, inefficient infrastructure and a value chain where the rewards of connecting the world are not equitably distributed,” says Willie Walsh, IATA’s Director General.
A better than expected 2022
IATA adds that improved prospects for 2022 stem largely from strengthened yields and strong cost control in the face of rising fuel prices. Passenger yields are expected to grow by 8.4 pc, rising from the 5.6 pc anticipated in June. Propelled by that strength, passenger revenues are expected to grow to USD 438 billion, up from USD 239 billion in 2021.
Air cargo revenues played a key role in cutting losses with revenues expected to reach USD 201.4 billion. That is an improvement compared with the June forecast, largely unchanged from 2021, and more than double the USD 100.8 billion earned in 2019.
Overall revenues are expected to grow by 43.6 pc compared to 2021, reaching an estimated USD 727 billion.
Most other factors evolved in a negative manner following a downgrade of GDP growth expectations, from 3.4 pc in June to 2.9 pc, and delays in removing Covid-19 restrictions in several markets, particularly China. IATA’s June forecast anticipated that passenger traffic would reach 82.4 pc of pre-crisis levels in 2022, but it now appears that the industry demand recovery will reach 70.6 pc of pre-crisis levels. Cargo, on the other hand, was anticipated to exceed 2019 levels by 11.7 pc, but that is now more likely be moderated to 98.4 pc of 2019 levels.
On the cost side, jet kerosene prices are expected to average USD 138.8/barrel for the year, considerably higher than the USD 125.5/barrel expected in June. That reflects higher oil prices exaggerated by a jet crack spread that is well-above historic averages. Even with lower demand leading to reduced consumption, this raised the industry’s fuel bill to USD 222 billion, which is well above the USD 192 billion anticipated in June.
“That airlines were able to cut their losses in 2022, in the face of rising costs, labor shortages, strikes, operational disruptions in many key hubs and growing economic uncertainty speaks volumes about peoples’ desire and need for connectivity. With some key markets like China retaining restrictions longer than anticipated, passenger numbers fell somewhat short of expectation. We’ll end the year at about 70 pc of 2019 passenger volumes. But with yield improvement in both cargo and passenger businesses, airlines will reach the cusp of profitability,” says Walsh.
Return to the black in 2023
In 2023 the airline industry is expected to tip into profitability. Airlines are anticipated to earn a global net profit of USD 4.7 billion on revenues of USD 779 billion, leading to a 0.6 pc net margin. This expected improvement comes despite growing economic uncertainties as global GDP growth slows to 1.3 pc, which is down from 2.9 pc in 2022.
“Despite the economic uncertainties, there are plenty of reasons to be optimistic about 2023. Lower oil price inflation and continuing pent-up demand should help to keep costs in check as the strong growth trend continues. At the same time, with such thin margins, even an insignificant shift in any one of these variables has the potential to shift the balance into negative territory. Vigilance and flexibility will be key,” says Walsh.
