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Airlines cut losses in 2022; return to profit in 2023: IATA

GENEVA, Switzerland, December 6, 2022

The global airline industry is expected to return to profitability in 2023 as airlines continue to cut losses stemming from the effects of the Covid-19 pandemic to their business in 2022, said the International Air Transport Association (IATA).

In 2023, airlines are expected to post a small net profit of $4.7 billion—a 0.6% net profit margin, marking 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, which is 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 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,” said Willie Walsh, IATA’s Director General.

“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.”

2022

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. That is 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.

“That airlines were able to cut their losses in 2022, in the face of rising costs, labour shortages, strikes, operational disruptions in many key hubs and growing economic uncertainty speaks volumes about peoples’ desire and need for connectivity,” said Walsh.

“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.”

2023

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. Passenger demand is expected to reach 85.5% of 2019 levels over the course of 2023. Passenger numbers are expected to surpass the four billion mark for the first time since 2019, with 4.2 billion travellers expected to fly.

“The job of airline managements will remain challenging as careful watch on economic uncertainties will be critical. 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,” said Walsh.

“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.”

Regional round-up

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.

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.

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. 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,” said Walsh. – TradeArabia News Service




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