Friday, February 3, 2023

Global airline industry will return to profit in 2023: IATA

The global airline industry will return to profitability in 2023, according to the latest IATA economic forecast.

In 2023, airlines are expected to post a small net profit of $4.7 billion—a 0.6 per cent net profit margin. It is the first profit since 2019 when industry net profits were $26.4 billion (3.1 per cent 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). This is significantly better than losses of $42.0 billion and $137.7 billion that were realized in 2021 and 2020 respectively.

“Despite the economic uncertainties, there are plenty of reasons to be optimistic about 2023,” IATA director general Willie Walsh said in a prepared statement.

“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.”

IATA has also issued an improved forecast for global airline industry results in 2022. According to the projection, the industry will lose $6.9 billion this year on revenues of $727 billion. That bottom-line estimate represents an upgrade from IATA’s most recent forecast, released in June, which projected global airline losses of $9.7 billion this year. Higher than expected prices made up for headwinds from a slowing globally economy and high fuel prices, IATA said. Demand for 2022 will be 70.6per cent of prepandemic levels.

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 6.4per cent is expected to outpace capacity growth of 5.5per cent. Over the year, the region is expected to serve 97.2per cent of pre-crisis demand levels with 98.9per cent 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 8.9per cent is expected to outpace capacity growth of 6.1per cent. Over the year, the region is expected to serve 88.7per cent of pre-crisis demand levels with 89.1per cent 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 $10.0 billion in 2022, narrowing to a $6.6 billion loss in 2023. In 2023, passenger demand growth of 59.8per cent is expected to outpace capacity growth of 47.8per cent. Over the year, the region is expected to serve 70.8per cent of pre-crisis demand levels with 75.5per cent 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 23.4per cent is expected to outpace capacity growth of 21.2per cent. Over the year, the region is expected to serve 97.8per cent of pre-crisis demand levels with 94.5per cent of pre-crisis capacity.

The region has benefited 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 $2.0 billion in 2022, reducing to $795 million in 2023. In 2023, passenger demand growth of 9.3per cent is expected to outpace capacity growth of 6.3per cent. Over the year, the region is expected to serve 95.6per cent of pre-crisis demand levels with 94.2per cent of pre-crisis capacity.

Latin America has shown buoyancy over the year, largely owing to the fact that many countries began lifting their COVID-19 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 27.4per cent is expected to outpace capacity growth of 21.9per cent. Over the year, the region is expected to serve 86.3per cent of pre-crisis demand levels with 83.9per cent 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,” added Walsh.

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