Despite the economic uncertainties, the International Air Transport Association (IATA) said there are plenty of reasons to be optimistic about 2023, predicting that it 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.
IATA on Tuesday disclosed that in 2023, the airline industry is expected to tip into profitability as carriers 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 Gross Domestic Product (GDP) growth slows to 1.3% (from 2.9% in 2022).
In the same vein, African airlines 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.
According to IATA, the clearing house for over 290 global airlines, cumulatively, in 2023, airlines are expected to post a small net profit of $4.7 billion—a 0.6% net profit margin, adding that It is 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). This is significantly better than the losses of $42.0 billion and $137.7 billion that were realized in 2021 and 2020 respectively.
The Director-General of IATA, Willie Walsh said resilience had been the hallmark for airlines in the COVID-19 crisis, adding that as they look to 2023, the financial recovery would take shape with a first industry profit since 2019.
His words, “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.”
Walsh highlighted that overall costs are expected to grow by 5.3% to $776 billion, stressing that growth is expected to be 1.8 percentage points below revenue growth, thus supporting a return to profitability, admitting that cost pressures are still there from labour, skill, and capacity shortages. Infrastructure costs are also a concern.
Nonetheless, he stated that 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.
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.
He reiterated higher oil prices exaggerated by a jet crack spread that is well-above historic averages, saying 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.
The IATA boss maintained that the expected profits for 2023 are razor-thin but noted that it is incredibly significant that they have turned the corner to profitability.
IATA Director-General, Willie Walsh
“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 preferences. 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.