GENEVA, 8 December 2022: 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 on their business in 2022.
- In 2023, airlines are expected to post a small net profit of USD4.7 billion—a 0.6% net profit margin. It is the first profit since 2019 when industry net profits were USD26.4 billion (3.1% net profit margin).
- In 2022, airline net losses are expected to be USD6.9 billion (an improvement on the USD9.7 billion loss for 2022 in IATA’s June outlook). This is significantly better than losses of USD42.0 billion and USD137.7 billion realised in 2021 and 2020, respectively.
“Resilience has been the hallmark for airlines in the COVID-19 crisis. As we look to 2023, the financial recovery will take shape with the first industry profit since 2019. That is a great achievement considering the scale of the financial and economic damage caused by government-imposed pandemic restrictions. But a USD4.7 billion profit on industry revenues of USD779 billion also illustrates that there is much more ground to cover to put the global industry on a solid financial footing. 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 IATA’s director general Willie Walsh.
2022
Improved prospects for 2022 stem largely from strengthened yields and strong cost control in the face of rising fuel prices.
Passenger yields are expected to grow by 8.4% (up from the 5.6% anticipated in June). Propelled by that strength, passenger revenues are expected to grow to USD438 billion (up from USD239 billion in 2021).
Air cargo revenues were key in cutting losses, with revenues expected to reach USD201.4 billion. That is an improvement compared with the June forecast, largely unchanged from 2021 and more than double the USD100.8 billion earned in 2019.
Overall revenues are expected to grow by 43.6% compared to 2021, reaching an estimated $727 billion.
Most other factors evolved negatively 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 June forecast anticipated that passenger traffic would reach 82.4% of pre-crisis levels in 2022, but it now appears that the industry demand recovery will reach 70.6% of pre-crisis levels. On the other hand, Cargo was anticipated to exceed 2019 levels by 11.7%, but that is now more likely to be moderated to 98.4% of 2019 levels.
On the cost side, jet kerosene prices are expected to average $138.8/barrel for the year, considerably higher than the USD125.5 per barrel expected in June. That reflects higher oil prices exaggerated by a jet crack spread that is well-above historical averages. Even with lower demand leading to reduced consumption, this raised the industry’s fuel bill to USD222 billion (well above the USD192 billion anticipated in June).
“That airlines were able to cut their losses in 2022, in the face of rising costs, labour shortages, strikes, operational disruptions in many key hubs, and growing economic uncertainty, speaks volumes about peoples’ desire and need for connectivity. With key markets like China retaining restrictions longer than anticipated, passenger numbers fell somewhat short of expectations. We’ll end the year at about 70% of 2019 passenger volumes. But with yield improvement in both cargo and passenger businesses, airlines will reach the cusp of profitability,” said Walsh.
2023
In 2023 the airline industry is expected to tip into profitability. Airlines are anticipated to earn a global net profit of $4.7 billion on revenues of USD779 billion (0.6% net margin). This expected improvement comes despite growing economic uncertainties as global GDP growth slows to 1.3% (from 2.9% 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. At the same time, with such thin margins, even an insignificant shift in any of these variables can shift the balance into negative territory. Vigilance and flexibility will be key,” said Walsh.
Main Drivers
Passenger: The passenger business is expected to generate USD522 billion in revenue. Passenger demand is expected to reach 85.5% of 2019 levels over the course of 2023. Much of this expectation takes into account the uncertainties of China’s Zero COVID policies which are constraining both domestic and international markets. Passengers are expected to surpass the 4 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%).
Cargo: Cargo markets are expected to come under increased pressure in 2023. Revenues are expected to be $149.4 billion, which is $52 billion less than in 2022 but still USD48.6 billion stronger than 2019. With economic uncertainty, cargo volumes are expected to decrease to 57.7 million tonnes from a peak of 65.6 million tonnes in 2021. As belly capacity grows in line with the recovery in passenger markets, yields are expected to take a significant step back. IATA expects a fall of 22.6% in cargo yields, mostly in the latter part of the year when the impact of inflation-cooling measures is expected to bite.
Costs: Overall costs are expected to grow by 5.3% to USD776 billion. That growth is expected to be 1.8 percentage points below revenue growth, thus supporting a return to profitability. Cost pressures are still there from labour, skill and capacity shortages. Infrastructure costs are also a concern.
Non-fuel unit costs are expected to fall to 39.8 cents/available tonne kilometre (down from 41.7 cents/ATK in 2022 and nearly matching the 39.2 cents/ATK achieved in 2019). Airline efficiency gains are expected to drive passenger load factors to 81.0 %, just slightly below the 82.6% achieved in 2019.
Fuel spending for 2023 is expected to be USD229 billion—consistent at 30% of expenses. IATA’s forecast is based on Brent crude at USD92.3/barrel (down from an average of USD103.2 per barrel in 2022). Jet kerosene is expected to average USD111.9 per barrel (down from USD138.8 per barrel). This decrease reflects a relative stabilisation of fuel supply after the initial disruptions from the war in Ukraine. The premium charged for jet fuel (crack spread) remains near historical highs.
Risks: The economic and geopolitical environment presents several potential risks to the 2023 outlook.
- While indications are that there could be an easing of aggressive inflation-fighting interest rate hikes from early 2023, the risk of some economies falling into recession remains. Such a slowdown could affect demand for both passenger and cargo services. It would, however, likely 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. A prolongation of China’s Zero COVID policies would adversely affect the outlook.
- If proposals for increased infrastructure charges or taxes to support sustainability efforts are introduced, it could also eat away at profitability in 2023.
“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 handle the economic accelerations and decelerations impacting demand. Airline profitability is razor-thin.
“Each passenger carried is expected to contribute, on average just USD1.11 to the industry’s net profit. In most parts of the world, that’s far less than what is needed to buy a cup of coffee. 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 counter-productive,” said Walsh.
For the full report, data tables and presentations, see
Global Outlook for Air Transport Report (pdf)
