IATA’s director general, Willie Walsh, denied that fares were excessive despite the upgrade in the financial outlook. He said profit margins remained “wafer thin” and blamed airline suppliers for increasing costs.
After industry losses of $183bn in the pandemic years, Walsh said airlines were “en route to a profitable, safe, efficient and sustainable future”.
People were flying despite economic uncertainties, he said, with the latest data showing passenger traffic down by less than 10% on 2019 levels.
Airline industry operating profits are expected to reach $22.4bn in 2023, much improved over the December forecast of a $3.2bn operating profit. It is also more than double the $10.1bn operating profit estimated for 2022. 4.35bn people are expected to travel in 2023, which is closing in on the 4.54bn who flew in 2019.
Cargo volumes are expected to be 57.8mn tonnes, which has slipped below the 61.5mn tonnes carried in 2019 with a sharp slowing of international trade volumes.
Total revenues are expected to grow 9.7% year-over-year to $803bn. This is the first time that industry revenues will top the $800bn mark since 2019 ($838bn). Expense growth is expected to be contained to an 8.1% annual increase.
“Airline financial performance in 2023 is beating expectations. Stronger profitability is supported by several positive developments. China lifted Covid-19 restrictions earlier in the year than anticipated. Cargo revenues remain above pre-pandemic levels even though volumes have not. And, on the cost side, there is some relief. Jet fuel prices, although still high, have moderated over the first half of the year,” said Willie Walsh, IATA’s director general.
The projections for a profitable commercial aviation’s sector follow the deepest losses in aviation’s history during the pandemic. The airline industry entered the Covid-19 crisis at the end of a historic profit streak that saw an average net profit margin of 4.2% for the 2015-2019 period.
“Economic uncertainties have not dampened the desire to travel, even as ticket prices absorbed elevated fuel costs. After deep Covid-19 losses, even a net profit margin of 1.2% is something to celebrate! But with airlines just making $2.25 per passenger on average, repairing damaged balance sheets and providing investors with sustainable returns on their capital will continue to be a challenge for many airlines,” said Walsh.
While air travel remains vulnerable to global instabilities, the outlook remains positive.
IATA noted that inflation fighting measures are maturing at different rates in different markets. Central banks are calibrating the best levels for interest rates to have a maximum cooling effect on inflation while avoiding tipping economies into recession. An early or lower end to rate rises could stimulate markets for a stronger year-end outlook. Equally, the risk of recession remains. Should recession lead to job losses, the industry’s outlook could shift negatively.
War in Ukraine is described as “not having a major impact on profitability” for most airlines. A currently unanticipated peace could carry the potential for cost improvements with lower oil prices and efficiencies from the removal or easing of airspace restrictions. An escalation, however, would likely have negative prospects for global aviation. Already broader geopolitical tensions are weighing upon international trade and any escalation of such tensions represents a downside risk to the industry outlook.
Supply chain issues continue to impact global trade and business, especially for manufacturers of aircraft such as Airbus and Boeing, and engine manufacturers. Supply chains are shifting to fill gaps in resilience caused by current geopolitical tensions and the challenges experienced during Covid-19. Airlines have been directly impacted by aircraft parts supply chain ruptures which aircraft and engine manufacturers have failed to sort out. It means airlines have struggled this year to take delivery of new aircraft which causes difficulties for carriers reliant on additional or replacement jets.
Regulatory cost burdens are at risk of increase from increasingly interventionist regulators. In particular, the industry could face rising costs of compliance for increasingly punitive passenger rights regimes and regional environment initiatives.
In the Middle East, the region’s return to profitability in 2022 was supported by a significant increase in the passenger load factor of almost 25 percentage points, outstripping the performance of the other regions. At the same time, Middle East carriers have been swiftly rebuilding their international networks and in March 2023, the region’s international connectivity had returned to 98% of its pre-Covid level.
For Africa, economic, infrastructure and connectivity challenges are continuing to impact industry performance. Nonetheless, despite these challenges, there is still robust demand for air travel in the region which underpins the continued move towards a return to overall industry profitability.
In Asia, a sharp rise in both passenger volumes and capacity is expected to be reflected in a sizeable improvement in 2023 financial results and a narrowing of the gap to other regions.
For Europe, with European carriers able to return to profit in 2022, that profitability is set to strengthen further in 2023. The key regional risks relate to the war in Ukraine, labour unrest and concerns about economic performance in some key countries.
North America has been described as the “standout” region in terms of financial performance. Consumer spending has remained solid, despite cost-of-living pressures, and the demand for air travel remains robust; air passenger demand is forecast to exceed its pre-Covid (2019) level this year.
And in Latin America, passenger volumes are recovering quickly, but the financial performance varies considerably across the region. The region will remain in the red, although some airlines are expected to post solid profits. Overall, industry financial performance is expected to continue to improve, but a challenging economic backdrop in several countries in the region is dampening the pace of recovery.
But as Wille Walsh, Director General of IATA noted: “Resilience is the story of the day and there are many good reasons for optimism”.
The author is an aviation analyst. Twitter handle: @AlexInAir