While acknowledging the existence of some headwinds, the International Air Transport Association (IATA) is maintaining an optimistic outlook for the global airline industry and expects that airlines jointly will post a net profit of $4.7 billion next year. That would mark the industry’s first positive result since the pandemic hit in 2020 and an improvement on the trade body’s previous outlook, released at its AGM in Doha in June, when it said that industrywide profitability in 2023 “appears within reach.”
Passenger numbers will return to pre-Covid levels in 2024, when, according to IATA, some 5.2 billion will board an airplane. During a media briefing on Tuesday, the airline industry group said that for 2022 it expects airline net losses to reach $6.9 billion, narrowed from the $9.7 billion loss IATA forecast in June. IATA chief economist Marie Owens Thomsen described the industry’s financial performance as “nothing but phenomenal.”
“In four years’ time, we moved from a big hole to profitability,’’ she said. Airlines posted $137.7 billion in net losses in 2020 and $42 billion in 2021. Yet, while returning to profit in 2023, the industrywide $4.7 billion profit on forecast revenues of $779 billion delivers a profit margin of just 0.6 percent. In 2019 industry net profits totaled $26.4 billion and the net profit margin amounted to 3.1 percent.
The “razor-thin profits also illustrate that there is much more ground to cover to put the global industry on a solid financial footing,” remarked IATA director general Willie Walsh. “The job of airline management 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.”
According to Owens Thomsen, pent-up demand for travel has so far protected the air traffic recovery even during a time of slowing economic growth and high inflation. However, “this fortunate situation can be expected to wane gradually over the next year,” she said. She sees travel restrictions, jet fuel prices, U.S. dollar appreciation, high inflation, slowing GDP growth, and rising unemployment as downside risks.
Walsh also pointed to the scarcity of spare parts, particularly engine parts, as an element that could affect the recovery. Engine OEMs seem to give priority to parts for use in the manufacturing of new engines rather than for repairs, he noted. “It would be a shame to see the recovery dented by the lack of spare parts,” he told reporters during the trade body’s global media days in Geneva on Tuesday.
Upside pressures would include peace, which the IATA chief economist said is “always the superlative growth policy,” and the end to Covid lockdowns in China.
The expected $4.6 billion industrywide profits in 2023 translate to just $1.11 of profit per passenger carried. “In most parts of the world that’s far less than what is needed to buy a cup of coffee,” noted Walsh. “Airlines must remain vigilant to any increases in taxes or infrastructure fees. And we’ll need to be particularly wary of those made in the name of sustainability…Our commitment is to net zero CO2 emissions by 2050. We’ll need all the resources we can muster, including government incentives, to finance this enormous energy transition. More taxes and higher charges would be counterproductive.”
Airline profitability recovery varies widely per region. With a $9.9 billion expected profit, North America will account for the only region to realize a profit this year. It also represents the main driver of profitability next year, according to IATA, which projects North American airlines will close 2023 with an $11.4 billion profit. IATA expects Europe and the Middle East will realize a meager profit of $621 million and $268 million in 2023, respectively.
In Europe, 2023 passenger demand growth of 8.9 percent will outpace capacity growth of 6.1 percent, said IATA. The war in Ukraine has curtailed the activities of some of the region’s carriers. Conversely, the Middle East has benefitted from a certain degree of re-routing resulting from the war in Ukraine. IATA expects passenger demand growth of 23.4 percent to outpace capacity growth of 21.2 percent next year.
The Asia-Pacific market remains critically held back by China’s zero Covid policies on travel. The region’s losses—$10 billion in 2022 and $6.6 billion in 2023—largely reflect the performance of China’s airlines, which face the full impact of the policy in both domestic and international markets.