Airlines will return to profit and fly a near-record 4.35 billion people this year, according to the International Air Transport Association (IATA), but the sector’s post-pandemic recovery remains weak.
The International Air Transport Association (IATA), reports business is expected to earn US$9.8 billion in net profits in 2023, more than doubling prior forecasts, thanks to the lifting of China’s Covid restrictions. According to the group, its 2022 losses are half as terrible as earlier predicted at US$3.6 billion.
“Airline financial performance in 2023 is exceeding expectations,” IATA director general Willie Walsh said during the organization’s annual general meeting in Istanbul.
“Several positive developments contribute to higher profitability.” “China lifted Covid-19 restrictions earlier than expected this year,” Walsh said. While jet fuel prices remain high, he says they have reduced in the first half of the year.
Inflation rose globally during Russia’s invasion of Ukraine in February 2022, sending energy costs skyrocketing, but oil and natural gas prices have since decreased.
“On the cost side, there is some relief,” Walsh explained.
“Economic uncertainties have not dampened the desire to travel, even as ticket prices have absorbed elevated fuel costs,” he noted.
Airline Earnings of $2.25 Per Passenger
Before Covid brought travel to a halt, airlines transported a record 4.54 billion people in 2019.
When countries implemented lockdowns and blocked borders in 2020, the industry lost $137 billion.
The industry lost another $42 billion in 2021 and was still in the negative last year when China, a major market, imposed Covid restrictions that were ultimately eased in December. According to the IATA, total sales will increase to $803 billion this year, up nearly 10% from 2022.
While the industry as a whole will make a profit, Walsh estimates that it will be only $2.25 per passenger, for a net profit margin of 1.2%.
Fuel Prices Remain High
According to the IATA, which represents over 300 airlines accounting for 83% of worldwide air passenger traffic, net profit for North American carriers would increase to $11.5 billion, $5.1 billion for European carriers, and $2 billion for Middle Eastern carriers.
However, Asian, Latin American, and African airlines will continue to lose money.
According to the IATA, airlines would spend $215 billion on gasoline this year, or $98.5 per barrel. This is a decrease from the average price of $135.6 in 2022. This year, fuel will account for 28% of airline costs, up from 24% in 2019.
“After deep Covid-19 losses, even a 1.2% net profit margin is something to celebrate,” Walsh remarked.
“However, with airlines earning an average of $2.25 per passenger, repairing damaged balance sheets and providing investors with sustainable returns on their capital will remain a challenge for many airlines,” he added.
According to the IATA, industry profitability is “fragile” and might be impacted by a variety of circumstances, including a central bank interest rate hike to combat inflation. “The risk of a recession persists.” If the recession causes job losses, the industry’s outlook may change,” it stated.
While the Ukraine conflict is not having a “major impact” on most airlines’ profitability, an escalation will undoubtedly harm global aviation, according to the report.
“Global geopolitical tensions are already weighing on international trade, and any escalation of such tensions represents a downside risk to the industry outlook,” according to the IATA.
Supply chain difficulties that have plagued global trade since the outbreak continue to be felt.
“Airlines have been directly impacted by aircraft parts supply chain ruptures that aircraft and engine manufacturers have failed to resolve,” according to the IATA.
“This has a negative impact on new aircraft deliveries as well as airlines’ ability to maintain and deploy existing fleets.”