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June 21, 2024
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The global airline industry is expected to generate $9.8 billion in net profits this year, the International Air Transport Association (IATA) said on Monday in its latest outlook. This is more than double that of the December guidance of $4.7 billion. The operating profits are expected to grow to $22.4 billion from $10.1 billion in the previous guidance. IATA predicts almost ten billion in airline profits this year.

IATA 2023 guidance compares to the deepest net losses in aviation’s history of $-183.3 billion of net losses between 2020 and 2022, resulting in a net profit margin of -11.3 percent over that period.

The significantly higher profits reflect the state of the industry, which is recovering much stronger and quicker than IATA expected during the Covid years. The association expects 4.35 billion to travel by air this year, which is getting close to 4.54 billion in 2019. Cargo volumes should reach 57.8 million tonnes but are seeing a sharp slowing of international trade volumes since the pandemic.

IATA thinks that total revenues will grow by 9.7 percent year over year to $803 billion. This would be the first time that industry revenues will surpass the $800 billion mark since 2019 when they totaled $838 billion. Revenues are expected to rise higher than expenses at 8.1 percent.

The association says that passenger revenues are expected to reach $546 billion (+27 percent on 2022 but -10 percent on 2019). With Covid-19 restrictions now removed in all major markets, the industry is expected to reach 87.8 percent of 2019 levels of revenue passenger kilometers (RPKs) for the year with strengthening passenger traffic as the year progresses. The high demand for travel in many markets is keeping yields strong with a modest 1.1 percent decline expected in 2023 compared to 2022 levels (following increases of 9.8 percent in 2022 and 3.7 percent in 2021).

Cargo revenues are expected to be $142.3 billion. This is down sharply from $210 billion in 2021 and $207 billion in 2022, but well above the $100 billion earned in 2019. Yields will be negatively impacted by the ramping-up of belly capacity on passenger aircraft and the potential negative effects on international trade of economic cooling measures introduced to fight inflation. Yields are expected to correct with a 28.6 percent decline this year, but still remain high by all historical comparisons.

Profits and losses by region

By region, North American airlines are expected to generate $11.5 billion in net profits this year compared to $9.1 billion in 2022. For Europe, the numbers are $5.1 billion versus $4.1 billion. The Middle East carriers should generate a $2.0 billion net profit versus $1.4 billion last year.

Other regions are still loss-making in 2023. The Asia Pacific should produce a $-6.9 billion net loss versus $-13.5 billion last year, Latin America $-1.4 billion compared to $-3.9 billion, and Africa $-0.5 billion versus $-0.8 billion.

Jet fuel costs have come down in recent months and are expected to average $98.5 a barrel this year, resulting in a total fuel bill of $215 billion. This compares to $111.9 a barrel that was expected in the December guidance and the average cost of $135.6 in 2022. IATA sees that the so-called crack spread (the difference between crude oil and jet fuel) has narrowed in recent months, having averaged more than 34 percent last year.

Major achievement

IATA hails the return to net profitability as a major achievement, even if the net profit margin is 1.2 percent which compares to 4.2 percent for 2015-2019. The world is still going through significant economic uncertainties, with many predicting that the economy will slip into a mild recession in some regions in early next year.

“Economic uncertainties have not dampened the desire to travel, even as ticket prices absorbed elevated fuel costs. After deep Covid-19 losses, even a net profit margin of 1.2 percent is something to celebrate! But with airlines just making $2.25 per passenger on average, repairing damaged balance sheets and providing investors with sustainable returns on their capital will continue to be a challenge for many airlines,” said IATA Director General Willie Walsh.  

Sir Tim Clark shared an unusual ‘yippee’ when accepting the nomination of Dubai for the 2024 IATA AGM. (Richard Schuurman)

Other risks are the economic and geopolitical environment, including inflation, the war in Ukraine, supply chain, and labor market issues. “With just $22.4 billion of operating profit (2.8 percent) standing between $803 billion of revenues and $781 billion in expenses, industry profitability is fragile,” IATA says.

Chief Economist Marie Owen Thomsen concedes that the profit situation for airlines in 2023 could reflect an exceptional situation as travelers are willing to accept higher airfares. “Logically, one would think that it would not last forever and that passengers will become more price-sensitive. One such potential moment could be when unemployment rates will go up. What that does to overall markets is more complex but we are aware this is an exceptional situation. It is possible that 2023 is kind of a sweet spot and that the sweet part is likely to wane over time.” 

Passenger rights

In his speech during the 79th AGM, Willie Walsh raised concerns about the fragmentation of passenger rights around the world and how this is impacting the airline industry. IATA has been calling on reforms of the EU261 rule, which grants passengers the right to compensation in case their flight is canceled. IATA is especially critical of the European Court of Justice, which has now issued over seventy rulings that go beyond the original intention of the regulation. IATA calls on a revision of EU261 to bring it back to its original scope.

The Biden Administration in the US is going the wrong way with its consideration to adopt EU-style legislation, IATA thinks. There is no need for any additional regulations to protect passenger rights as they already exist, IATA notes. The ten largest US airlines so offer customers free meals and vouchers and even hotel accommodation in case of a flight delay or cancelation.

So we were amazed when the US announced that EU 261 will be the model for its punitive passenger rights regime. That closely followed Canada’s latest innovation on its 261-style regime where the airline is now guilty until proven innocent. Considering that 93 percent of Canadian travelers polled told us that they were satisfied with their last flight, this is a regulatory sledgehammer to crack a nut, and the results will be messy. We must keep careful watch because governments from Australia to Latin America and the Middle East are all thinking about their own innovations in this area, which could be a nightmare for airlines and their passengers.”

IATA is most concerned that the EU might adopt a “pay as you fly scheme”, in which passengers only pay for their flights when they actually operate. “In a misguided initiative to protect travelers, airlines would only receive full payment when the journey is complete. The cash flow impact would be horrendous. And who’s interest will be served by the higher costs and higher fares that will result?”

The 80th IATA AGM will be held in Dubai on June 2-4, 2024, which caused Emirates’ President Sir Tim Clark you yell an unusual “yippee” when he was invited to accept the nomination.

author avatar
Richard Schuurman
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. Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.

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