Airlines’ global trade body IATA predicts aviation sector returning to profitability in its 2023 outlook

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The International Air Transport Association (IATA), the world airlines’ trade body, has predicted a return to profitability for the global airline industry in 2023, a good two years after the industry grappled with the after-effects of the Covid-19 pandemic. Used to be.

The Geneva-headquartered union expects the airlines to post a smaller net profit of $4.7 billion on a 0.6 percent net profit margin. This would be the first profit earned by the airline industry since 2019 when net profit was $26.4 billion or a 3.1 percent net profit margin.

Airline industry losses for 2022 are expected to be $6.9 billion, an improvement from the $9.7 billion loss for 2022 in IATA’s June 2022 outlook. This is much better than losses of $42 billion and $137.7 billion in 2021 and 2020, respectively.

“As we look to 2023, the financial recovery will take shape with the first industry gains since 2019. This is a major achievement given the scale of the financial and economic damage caused by the pandemic restrictions imposed by the government,” IATA said the Director General, Wiley Walsh, in an official statement.

However, he cautioned that the $4.7 billion profit on industry revenue of $779 billion also shows that there is a lot of ground to be covered to get the industry back on a sound financial footing.

“Many airlines are profitable enough 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 heavy regulation, high costs, inconsistent government policies, inefficient infrastructure and a value chain where the rewards of connecting the world are not distributed equally,” Walsh said.

The prospect of some economies entering recession, prolongation of China’s zero COVID policies and proposals to increase infrastructure fees or taxes to support stabilization efforts pose significant risks to the outlook.

The findings are based on an opinion survey commissioned by IATA in November in 11 markets including Chile, the US, Canada, the UK, France, Germany, the UAE, India, Singapore, Australia and Japan. It was conducted independently by UK-based market research agency Motif and polled a total of 4,700 respondents.

IATA represents approximately 300 airlines representing 83 percent of global air traffic.

key growth drivers

In 2023, the passenger business is expected to generate revenue of $522 billion. Passenger demand is expected to reach 85.5 percent of 2019 levels during 2023. Much of this forecast takes into account the uncertainties surrounding China’s zero COVID policies, which disrupt both domestic and international markets. Nonetheless, passenger numbers are expected to exceed 4 billion for the first time since 2019, with 4.2 billion passengers expected to fly.

However, passenger yield is expected to decline by -1.7 percent as some lower energy costs are passed on to passengers despite demand growing faster (+21.1 percent) compared to passenger capacity (+)18.0 percent.

Interestingly, cargo markets are predicted to come under pressure in 2023. Revenue is expected to be $149.4 billion, which is $52 billion less than in 2022 but still a stronger $48.6 billion than 2019. With economic uncertainty, cargo volumes are expected to come down. from a peak of 65.6 million tonnes to 57.7 million tonnes in 2021. With the recovery in passenger markets increasing carrying capacity, a significant step back in yields is expected.

IATA expects cargo yields to decline by 22.6 per cent in the second half of the year, when the impact of inflation-causing measures is expected to bite. To put the decline in context, cargo yields are projected to increase by 52.5 percent in 2020, 24.2 percent in 2021 and 7.2 percent in 2022. Even the large and expected decline leaves cargo yields well above pre-pandemic levels.

The total cost is expected to increase by 5.3 percent to $776 billion. This growth is expected to be lower than revenue growth of 1.8 per cent, thus supporting the return on profitability. Cost pressures from labor, skill and capacity constraints still persist. Infrastructure cost is also a concern.

Nonetheless, non-fuel unit costs are expected to fall from 41.7 cents/atk to 39.8 cents/available tonne kilometer (atk) in 2022, roughly matching the 39.2 cents/atk achieved in 2019.

In addition, airline efficiency gains are expected to drive passenger load factors to 81.0 percent, only slightly lower than the 82.6 percent achieved in 2019.

Total jet fuel or aviation turbine fuel (ATF) spending for 2023 is expected to be $229 billion, corresponding to 30 percent of spending. In India, however, various surcharges and fees take it up to 40 per cent for domestic carriers.

IATA’s forecast is based on Brent crude at $92.3/barrel, down from its 2022 average of $103.2/barrel. Jet fuel is expected to average $111.9/barrel, down from $138.8/barrel. The reduction reflects the relative stabilization of fuel supplies after initial disruptions from the ongoing conflict in Ukraine. The premium or crack spread charged for jet fuel remains near historic highs.

Developments in the Asia-Pacific region, which includes India, have been restricted by the impact of China’s zero-COVID policies on travel. Taking a conservative view of the progressive easing of restrictions in China in the second half of 2023, IATA expects strong demand growth to fuel a rapid rebound. The sector’s performance will get a significant boost from profitable air cargo markets, in which it is the largest player.

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