IATA has forecast the global airline industry to
return to profitability in 2023 as airlines continue to cut losses
stemming from the effects of the COVID19 pandemic to their
business in 2022.
In 2023, airlines are expected to post a small net
profit of $4.7 billion, a 0.6% net profit margin and the first
profit since 2019 when industry net profits were $26.4 billion
(3.1% net profit margin).
In 2022, airline net losses are expected to be
$6.9 billion, an improvement on the $9.7 billion loss for 2022 in
IATA’s June outlook and significantly better than losses of
$42.0 billion and $137.7 billion that were realized in 2021 and
2020 respectively.
“Resilience has been the hallmark for airlines in
the COVID19 crisis,” said Willie Walsh, IATA’s Director General.
“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 $4.7 billion
profit on industry revenues of $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
decarbonizes. 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.”
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%, up
from the 5.6% anticipated in June. Propelled by that strength,
passenger revenues are expected to grow to $438 billion, up from
$239 billion in 2021.
Air cargo revenues played a key role in cutting
losses with revenues expected to reach $201.4 billion, an
improvement compared with the June forecast, largely unchanged
from 2021, and more than double the $100.8 billion earned in 2019.
Overall revenues are expected to grow by 43.6%
compared to 2021, reaching an estimated $727 billion.
Most other factors evolved in a negative manner
following a downgrade of GDP growth expectations (from 3.4% in
June to 2.9%), and delays in removing COVID19 restrictions in
several markets, particularly China.
IATA’s June forecast
anticipated that passenger traffic would reach 82.4% of pre-crisis
levels in 2022, but it now appears that the industry demand
recovery will reach 70.6% of pre-crisis levels.
Cargo, on the
other hand, was anticipated to exceed 2019 levels by 11.7%, but
that is now more likely be moderated to 98.4% of 2019 levels.
On the cost side, jet kerosene prices are expected
to average $138.8/barrel for the year, considerably higher than
the $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 $222 billion, well above the $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% of
2019 passenger volumes. But with yield improvement in both cargo
and passenger businesses, airlines will reach the cusp of
profitability,” said Walsh.
In 2023 the airline industry is expected to tip
into profitability. Airlines are anticipated to earn a global net
profit of $4.7 billion on revenues of $779 billion (0.6% net
margin). This expected improvement comes despite growing economic
uncertainties as global GDP growth slows to 1.3%, from 2.9% 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,” said
Walsh.
: The passenger business is expected to
generate revenues of $522 billion with passenger demand to
reach 85.5% of 2019 levels over the course of 2023.
Much of this
expectation takes into account the uncertainties of China’s Zero
COVID policies which are constraining both domestic and
international markets. Nonetheless, passenger numbers are expected
to surpass the four billion mark for the first time since 2019,
with 4.2 billion travelers expected to fly.
Passenger yields,
however, are expected to soften (-1.7%) as somewhat lower energy
costs are passed through to the consumer, despite passenger demand
growing more quickly (+21.1%) than passenger capacity (+18%).
: Cargo markets are expected to come under
increased pressure in 2023 with revenues expected to be $149.4
billion, $52 billion less than 2022 but still $48.6
billion stronger than 2019.
With economic uncertainty, cargo
volumes are expected to decrease to 57.7 million tonnes, from a
peak of 65.6 million tonnes in 2021.
As belly capacity grows in
line with the recovery in passenger markets, yields are expected
to take a significant step back. IATA expects a fall of 22.6% in
cargo yields, mostly in the latter part of the year when the
impact of inflation-cooling measures are expected to bite.
To put
the yield decline in context, cargo yields grew by 52.5% in 2020,
24.2% in 2021 and 7.2% in 2022. Even the sizable and expected
decline leaves cargo yields well-above pre-COVID levels.
: Overall costs are expected to grow by 5.3%
to $776 billion. That growth is expected to be 1.8 percentage
points below revenue growth, thus supporting a return to
profitability. Cost pressures are still there from labor, skill
and capacity shortages. Infrastructure costs are also a concern.
Nonetheless, non-fuel unit costs are expected to
fall to 39.8 cents/available tonne kilometer (down from 41.7
cents/ATK in 2022 and nearly matching the 39.2 cents/ATK achieved
in 2019). Airline efficiency gains are expected to drive passenger
load factors to 81.0 %, just slightly below the 82.6% achieved in
2019.
The total fuel spend for 2023 is expected to be
$229 billion, consistent at 30% of expenses. IATA’s forecast is
based on Brent crude at $92.3/barrel, down from an average of
$103.2/barrel in 2022.
Jet kerosene is expected to average
$111.9/barrel, down from $138.8/barrel. This decrease reflects a
relative stabilization of fuel supply after the initial
disruptions from the war in Ukraine. The premium charged for jet
fuel (crack spread) remains near historical highs.
: The economic and geopolitical environment
presents several potential risks to the 2023 outlook:
– While indications are that there could be an
easing of aggressive inflation-fighting interest rate hikes from
early 2023, the risk of some economies falling into recession
remains. Such a slowdown could affect demand for both passenger
and cargo services. It would, however, likely come with some
mitigation in the form of lower oil prices.
– The outlook anticipates a gradual re-opening of
China to international traffic and the easing of domestic COVID19
restrictions progressively from the second half of 2023. A
prolongation of China’s Zero COVID policies would adversely affect
the outlook.
– If materialized, proposals for increased
infrastructure charges or taxes to support sustainability efforts
could also eat away at profitability in 2023.
“The job of airline managements will remain
challenging as careful watch on economic uncertainties will be
critical,” said Walsh. “The good news is that airlines have built
flexibility into their business models to be able to handle the
economic accelerations and decelerations impacting demand. Airline
profitability is razor thin. Each passenger carried is expected to
contribute on average just $1.11 to the industry’s net profit. In
most parts of the world that’s far less than what is needed to buy
cup of coffee. Airlines must remain vigilant to any increases in
taxes or infrastructure fees. And we’ll need to be particularly
wary of those made in the name of sustainability. Our commitment
is to net zero CO2 emissions by 2050. We’ll need all the resources
we can muster, including government incentives, to finance this
enormous energy transition. More taxes and higher charges would be
counter-productive.”
All regions’ financial performance continues to
improve since the depth of the pandemic losses seen in 2020. North
America is the only region to return to profitability in 2022,
based on IATA’s estimates. Two regions will join ranks with North
America in this respect in 2023: Europe and the Middle East, while
Latin America, Africa and Asia-Pacific will remain in the red.
North American carriers are expected realize
profits of $9.9 billion in 2022 and $11.4 billion in 2023. In
2023, passenger demand growth of 6.4% is expected to outpace
capacity growth of 5.5%. Over the year, the region is expected to
serve 97.2% of pre-crisis demand levels with 98.9% of pre-crisis
capacity. Carriers in the region benefitted from fewer and
shorter-lasting travel restrictions than many other countries and
regions. This boosted the large US domestic market, as well as
international travel, notably across the Atlantic.
European carriers are expected to see a loss of
$3.1 billion in 2022, and a profit of $621 million in 2023. In
2023, passenger demand growth of 8.9% is expected to outpace
capacity growth of 6.1%. Over the year, the region is expected to
serve 88.7% of pre-crisis demand levels with 89.1% of pre-crisis
capacity. The war in Ukraine has curtailed the activities of
some of the region’s carriers. Operational disruptions at some of
the continent’s hubs are being resolved, but labor unrest
continues at various locations.
Asia-Pacific carriers are expected to post a loss
of $10 billion in 2022, narrowing to a $6.6 billion loss in
2023. In 2023, passenger demand growth of 59.8% is expected to
outpace capacity growth of 47.8%. Over the year, the region is
expected to serve 70.8% of pre-crisis demand levels with 75.5% of
pre-crisis capacity.
Asia-Pacific is critically held back by the impact
of China’s zero COVID policies on travel and the region’s losses
are largely skewed by the performance of China’s airlines who face
the full impact of this policy in both domestic and international
markets. Taking a conservative view of progressive easing of
restrictions in China over the second half of 2023, we
nevertheless expect strong pent-up demand to fuel a quick rebound
in the wake of any such moves. The region’s performance receives a
significant boost from profitable air cargo markets, in which it
is the largest player.
Middle East carriers are expected to post a loss
of $1.1 billion in 2022, and a profit of $268 million in 2023. In
2023, passenger demand growth of 23.4% is expected to outpace
capacity growth of 21.2%. Over the year, the region is expected to
serve 97.8% of pre-crisis demand levels with 94.5% of pre-crisis
capacity. The region has benefitted from a certain degree of
re-routing resulting from the war in Ukraine, and more
significantly so from the pent-up travel demand using the region’s
extensive global networks as international travel markets
re-opened.
Latin American carriers are expected to post a
loss of $2 billion in 2022, reducing to $795 million in 2023. In
2023, passenger demand growth of 9.3% is expected to outpace
capacity growth of 6.3%. Over the year, the region is expected to
serve 95.6% of pre-crisis demand levels with 94.2% of pre-crisis
capacity. Latin America has shown buoyancy over the year,
largely owing to the fact that many countries began lifting their
COVID19 travel restrictions since mid-year.
African carriers are expected to post a loss of
$638 million in 2022, narrowing to a loss of $213 million in 2023.
Passenger demand growth of 27.4% is expected to outpace capacity
growth of 21.9%. Over the year, the region is expected to serve
86.3% of pre-crisis demand levels with 83.9% of pre-crisis
capacity. Africa is particularly exposed to macro-economic
headwinds which have increased the vulnerability of several
economies and rendered connectivity more complex.
“The expected profits for 2023 are razor thin,”
Walsh said. “But it is incredibly significant that we have turned
the corner to profitability. The challenges that airlines will
face in 2023, while complex, will fall into our areas of
experience. The industry has built a great capability to adjust to
fluctuations in the economy, major cost items like fuel prices,
and passenger preference. We see this demonstrated in the decade
of strengthening profitability following the 2008 Global Financial
Crisis and ending with the pandemic. And encouragingly, there are
plenty of jobs and the majority of people are confident to travel
even with an uncertain economic outlook.”
Passengers are taking advantage of the return of
their freedom to travel. A recent IATA poll of travelers in 11
global markets revealed that nearly 70% are traveling as much or
more than they did prior to the pandemic. And, while the economic
situation is concerning to 85% of travelers, 57% have no intention
to curb their travel habits.
The same study also demonstrated the important
role that travelers see the airline industry playing:
– 91% said that connectivity by air is critical to
the economy;
– 90% said that air travel is a necessity for
modern life;
– 87% said that air travel has a positive impact
on societies; and
– Of the 57% familiar with the UN Sustainable
Development Goals (SDGs), 91% understand that air transport is a
key contributor.
