The International Air Transport Association (IATA) 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.

In 2023, airlines are expected to post a small net profit of $4.7 billion – a 0.6% net profit margin as compared to $26.4 billion (3.1% net profit margin) in 2019.

In 2022, airline net losses are expected to be $6.9 billion, down from the $9.7 billion loss for the same year in IATA’s June outlook – a significant improvement over the $42 billion and $137.7 billion losses in 2021 and 2020 respectively.

“Many airlines are sufficiently profitable to attract the capital needed to drive the industry forward as it decarbonises – 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 Willie Walsh, IATA’s director general.

Improved prospects for 2022
Passenger yields are expected to grow by 8.4% (up from the 5.6% anticipated in June), and is expected to propel passenger revenues to $438 billion (up from $239 billion in 2021).

Overall revenues are expected to grow by 43.6% compared to 2021, reaching an estimated $727 billion.

Most other factors evolved in a negative manner following a downgrade of GDP growth expectations (from 3.4% in June to 2.9%), and delays in removing Covid-19 restrictions in several markets, particularly China. IATA’s anticipates that the industry demand recovery will reach 70.6% of pre-crisis levels.

2023 sees tip into profitability
Airlines are anticipated to earn a global net profit of $4.7 billion on revenues of $779 billion despite growing economic uncertainties as global GDP growth slows from 2.9% to 1.3%.

The passenger business is expected to generate revenues of $522 billion with passenger demand expected to reach 85.5% of 2019 levels over the course of 2023, and passenger numbers are expected to surpass the four billion mark for the first time since 2019, with 4.2 billion travellers expected to fly. Passenger yields, however, are expected to soften (-1.7%) as somewhat lower energy costs are passed through to the consumer, despite passenger demand growing more quickly (+21.1%) than passenger capacity (+18.0%).

Overall costs are expected to grow by 5.3% to $776 billion, 1.8% below revenue growth. Cost pressures still linger from labour, skill and capacity shortages, with infrastructure costs also a concern.

The economic and geopolitical environment presents several potential risks to the 2023 outlook, such as an easing of aggressive inflation-fighting interest rate hikes from early 2023, or the risk of some economies falling into recession. Such a slowdown could affect demand for passenger services, and likely to come with some mitigation in the form of lower oil prices.

The outlook anticipates a gradual re-opening of China to international traffic and the easing of domestic Covid-19 restrictions progressively from the second half of 2023 – any prolongation of China’s Zero Covid policies would adversely affect the outlook, resulting in proposals for increased infrastructure charges or taxes to support sustainability efforts eating away at profitability in 2023.

“The job of airline managements will remain challenging as careful watch on economic uncertainties will be critical. 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,” said Walsh.

Regional round up
Financial performance from all regions continue to improve, with North America as the only one to return to profitability in 2022. Europe and the Middle East will join ranks with North America in this respect in 2023, while the rest of the world will remain in the red.

North American carriers are expected realise profits of $9.9 billion in 2022 and $11.4 billion in 2023. In 2023, passenger demand growth of 6.4% is expected to outpace capacity growth of 5.5%. Over the year, the region is expected to serve 97.2% of pre-crisis demand levels with 98.9% of pre-crisis capacity.

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 8.9% is expected to outpace capacity growth of 6.1%. Over the year, the region is expected to serve 88.7% of pre-crisis demand levels with 89.1% of pre-crisis capacity.

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 59.8% is expected to outpace capacity growth of 47.8%. Over the year, the region is expected to serve 70.8% of pre-crisis demand levels with 75.5% 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.

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 23.4% is expected to outpace capacity growth of 21.2%.

The Middle East has benefitted 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.

Over the year, the region is expected to serve 97.8% of pre-crisis demand levels with 94.5% of pre-crisis capacity.