IATA: Airline Industry to Tip into Profitability in 2023
The global airline industry is expected for the first time since the outbreak of the Covid-19 pandemic to post a net profit of 4.7 billion dollars – a 0.6 percent net profit margin, said the International Air Transport Association (IATA) this week.
The gains compared to industry net profits of 26.4 billion dollars (3.1 percent net profit margin) are the first posted since the Covid crisis broke out in 2019 demonstrating a strong appetite for travel and following effective airline company actions to cut losses in 2022.
More specifically, according to IATA, airlines are set to earn a total net profit of 4.7 billion dollars on revenues of 779 billion dollars (0.6 percent net margin) despite growing economic uncertainties as global GDP growth slows to 1.3 percent (from 2.9 percent 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,” said IATA Director General Willie Walsh.
According to IATA, in 2023, passengers are expected to generate 522 billion dollars in revenues with demand reaching 85.5 percent of 2019 levels.
However, cargo markets are expected to come under increased pressure in 2023 with forecast revenues at 149.4 billion dollars, down by 52 billion dollars over 2022 but still 48.6 billion dollars stronger than 2019. IATA analysts add that due to economic uncertainty, cargo volumes are expected to drop to 57.7 million tons from 65.6 million tons in 2021.
Overall costs are expected to grow by 5.3 percent to 776 billion dollars while total fuel spend for 2023 is forecast at reaching 229 billion dollars “consistent at 30 percent of expenses”. This decrease reflects a relative stabilization of fuel supply after the initial disruptions from the Russia – Ukraine war, said IATA.
Key risks for recovery in 2023 include the possibility of some economies falling into recession affecting demand for both passenger and cargo services; the entension of China’s Zero Covid policies; and proposals for increased infrastructure charges or taxes to support sustainability efforts.
“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. Each passenger carried is expected to contribute on average just 1.11 dollars to the industry’s net profit,” said Walsh.
Overall, all regions are showing signs of financial recovery with North America being the only region to return to profitability in 2022.
Europe is set on returning to profit in 2023. European carriers are expected to see a loss of 3.1 billion dollars in 2022 and a profit of 621 million dollars in 2023. Passenger demand growth of 8.9 percent is expected to outpace 6.1 percent in capacity growth. Throughout 2023, the region is expected to serve 88.7 percent of pre-Covid demand levels with 89.1 percent of pre-crisis capacity.
Meanwhile, airline net losses this year are expected to be 6.9 billion dollars, significantly better than 42.0 billion dollars and 137.7 billion dollars in losses incurred in 2021 and 2020, respectively.
IATA represents some 290 airlines which account for 83 percent of global air traffic.