The airline industry is expected to return to profitability again in 2023. Without unforeseen events, the world’s airlines will generate a profit of $4.7 billion, but IATA Director General refers to this profit level as ‘razor thin’, he said on December 6 during the Global Media Days in Geneva. IATA: airlines back to ‘razor thin’ profits in 2023.

The $4.7 billion profit compares to the expected $-6.9 billion combined loss for 2022 or $-42 billion in 2021 and $-137.7 billion in 2020, the first year of Covid.

The $4.7 billion represents a net profit margin of 0.6 percent. The airline industry is expected to generate $779 billion in revenues next year. This shows “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,” said IATA Director General Willie Walsh.

2022 losses will be lower

The 2022 loss is better than guided in June during the IATA AGM in Doha when it forecasted a $-9.7 billion loss. The better result comes from improved yields (plus 8.4 percent) and stringent cost control, but are offset by higher fuel costs (138.8 per barrel), a lower GDP (from 3.4 for 2.9 percent), and continued Covid restrictions in some areas, notably China. These circumstances are holding back the recovery of air travel, which is expected to be 70.6 percent of pre-pandemic levels compared to the previous guidance of 82.4 percent in June. Cargo is also down previous expectations: from 111.7 percent in June to 98.4 percent in the latest IATA forecast. Total passenger revenues should end at $438 billion this year, with another $201.4 billion to be generated by cargo.

2023

For 2023, IATA is taking an even lower rate of GDP into account: just 1.3 percent. This reflects the growing economic uncertainties, with some regions slipping into a mild recession. Nevertheless, passenger demand is expected to recover further to 85.5 percent of 2019 levels during the year, with passenger numbers to exceed four billion for the first time again since the last year before the pandemic. The numbers include a gradual re-opening of China.

Cargo will feel the effects of the economic downturn more, with revenues expected to be down by $52.2 billion from this year to $149.4 billion and yields down by 22.6 percent. This confirms the cooling down of cargo yields since this year, although they are still higher than in 2019.

IATA projects cost to increase by 5.3 percent in 2023 to $776 billion, caused by fuel, labor costs, capacity shortages, and infrastructure costs. Fuel costs are calculated on a price of $92.2 per barrel for Brent oil ($103.2 in 2022) and should end at $229 billion. While fuel prices seem to stabilize, the difference between crude oil prices and jet fuel (the so-called jet crack) remains at record-high levels.  

Regions

By region, airlines in North America are expected to remain the most profitable, generating a $9.9 billion profit this year and $11.4 billion in 2023 on a 6.4 percent passenger growth. Capacity should be back to 98.9 percent. In Europe, airlines will suffer a $-3.1 billion loss this year but recover to a $621 million next year, based on 6.1 percent growth and 89.1 percent capacity. Middle East carriers will produce a $-1.1 billion loss year but return to a $268 million profit in 2023, with demand growing by 23.4 percent and capacity to 94.5 percent.

Latin America carriers will generate a $-2.0 billion loss this year, improving this to $-795 million in 2023. Passenger demand will grow by 9.3 percent and capacity will recover to 94.2 percent. Losses for African airlines will end at $-638 million and recover to $-213 million next year on the back of 27.4 percent passenger growth and 83.9 percent capacity.

The Asia Pacific will produce a $-10 billion loss this year, mainly because of the restrictions in China. Taking the gradual re-opening of China into account, the loss should be narrowed to $-6.6 billion in 2023. Passenger demand should grow by 59.8 percent but capacity will recover to only 75.5 percent of pre-pandemic levels.

“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”, said Willie Walsh in a media statement. “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.”

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Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
In 2022, he has gone full-time freelance. Richard has been contributing to AirInsight since December 2018. He is also writing for Airliner World and Aviation News. From January 2023, he will add a part-time role with Dutch website and magazine Luchtvaartnieuws. Twitter: @rschuur_aero.

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