Airlines cut losses in 2022 and return to profitability in 2023

In 2023, airlines are expected to post a small net profit of $4.7 billion, a net profit margin of 0.6%. It is the first gain since 2019, when industry net profit was $26.4 billion (3.1% net profit margin). 

In 2022, airline net losses are expected to be $6.9 billion (an improvement from the $9.7 billion loss for 2022 in IATA's June outlook). This is significantly better than the losses of $42.0 billion and $137.7 billion that were realized in 2021 and 2020 respectively. 

Resilience has been the hallmark of airlines in the COVID-19 crisis. As we look to 2023, the financial recovery will take shape with a first industry profit since 2019. That is quite an achievement considering the scale of the financial and economic damage caused by the government-imposed pandemic restrictions. But a profit of $4.7 billion on industry revenue of $779 billion also illustrates that there is much more ground to cover to put the global industry on solid financial footing. Many airlines are profitable enough to attract the capital needed to boost the industry as it decarbonises. But many others are struggling for a variety of reasons. These include burdensome regulations, high costs, 

2022 

The better prospects for 2022 stem largely from strengthening yields and strong cost control in the face of rising fuel prices. 

Passenger yields are expected to grow 8.4% (versus 5.6% anticipated in June). Fueled by that strength, passenger revenue is expected to grow to $438 billion (up from $239 billion in 2021). 

Air cargo revenue played a key role in reducing losses and revenue is expected to reach $201.4 billion. That's an improvement from the June forecast, virtually unchanged from 2021, and more than double the $100.8 billion earned in 2019. 

Overall revenue is expected to grow 43.6% compared to 2021, reaching an estimated $727 billion. 

Most other factors turned negative after lowering GDP growth expectations (from 3.4% in June to 2.9%) and delays in lifting 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 now it looks like the recovery in industry demand will reach 70.6% of previous levels. to the crisis. On the other hand, the load was anticipated to exceed 2019 levels by 11.7%, but is now more likely to moderate to 98.4% of 2019 levels. 

On the cost side, jet fuel prices are expected to average $138.8/barrel for the year, considerably higher than the $125.5/barrel expected in June. That reflects higher oil prices exaggerated by a jet crack differential that is well above historical averages. Even with lower demand leading to reduced consumption, this brought the industry's fuel bill to $222 billion (well above the $192 billion anticipated in June). 

That airlines have been able to cut their losses in 2022, in the face of rising costs, labor shortages, strikes, operational disruptions at many key hubs, and mounting economic uncertainty speaks volumes about the desire and need for connectivity. of people. With some key markets, such as China, maintaining restrictions for longer than anticipated, passenger numbers were slightly below expectations. We will end the year with approximately 70% of the passenger volume of 2019. But with performance improving in both the cargo and passenger businesses, airlines will reach the pinnacle of profitability,” Walsh said. 

2023 

In 2023, the airline industry is expected to reach profitability. Airlines are expected to earn global net profit of $4.7bn on revenue of $779bn (0.6% net margin). This expected improvement comes despite mounting economic uncertainties, as global GDP growth slows to 1.3% (from 2.9% in 2022). 

Despite economic uncertainties, there are plenty of reasons to be optimistic about 2023. Lower oil price inflation and continued pent-up demand should help keep costs in check as the strong growth trend continues. At the same time, with such small margins, even a negligible change in any of these variables has the potential to shift the balance into negative territory. Vigilance and flexibility will be key,” Walsh said. 

main drivers 

Passenger: The passenger business is expected to generate revenue of $522 billion. Passenger demand is expected to reach 85.5% of 2019 levels over the course of 2023. Much of this expectation factors in the uncertainties of China's Zero COVID policies that constrain domestic and international markets. However, passenger numbers are expected to cross the 4 billion mark for the first time since 2019, with 4.2 billion travelers expected to fly. However, passenger yields are expected to soften (-1.7%) as somewhat lower energy costs are passed on to the consumer, despite passenger demand growing faster (+21.1% ) than passenger capacity (+18.0%). 

Cargo: Cargo markets are expected to come under further pressure in 2023. Revenues are expected to be $149.4 billion, which is $52 billion less than 2022 but still $48.6 billion more than 2019. With economic uncertainty , cargo volumes are expected to decline to 57.7 million tons, from a peak of 65.6 million tons in 2021. As cargo capacity grows in line with the recovery of passenger markets, it is expected yields to take a significant step back. IATA expects a 22.6% drop in cargo throughputs, mainly in the latter part of the year, when the impact of inflation-cooling measures is expected to be strongest. To put the performance decline in context, charging performances grew by 52, 

Costs: Overall costs are expected to grow 5.3% to $776 billion. That growth is expected to be 1.8 percentage points below revenue growth, which will support a return to profitability. Cost pressures are still there due to shortages of manpower, skills and capacity. Infrastructure costs are also a concern. 

However, non-fuel unit costs are expected to fall to 39.8 cents per available tonne-kilometre (down from 41.7 cents per ATK in 2022 and nearly matching the 39.2 cents per ATK achieved in 2019). Airline efficiency improvements are expected to boost passenger load factors to 81.0%, just slightly below the 82.6% achieved in 2019. 

Total fuel spending by 2023 is expected to be $229 billion, consisting of 30% of spending. IATA's forecast is based on Brent crude at $92.3/barrel (down from an average of $103.2/barrel in 2022). Jet kerosene is expected to average $111.9/barrel (versus $138.8/barrel). This decrease reflects a relative stabilization of fuel supplies after the initial interruptions of the war in Ukraine. The premium charged for jet fuel (crack spread) remains near all-time highs. 

Risks: The economic and geopolitical environment presents several potential risks to the 2023 outlook. 

While there are signs that aggressive inflation-fighting interest rate hikes could taper off from early 2023, the risk of some economies slipping into recession remains. Such a slowdown could affect demand for both passenger and cargo services. However, it will likely come with some mitigation in the form of lower oil prices. 

The outlook anticipates a gradual reopening of China to international traffic and the relaxation of internal COVID-19 restrictions progressively from the second half of 2023. An extension of China's Zero COVID policies would negatively affect the outlook. 
If they materialize, proposals to increase infrastructure fees or taxes to support sustainability efforts could also reduce profitability in 2023. 

The job of airline managers will continue to be challenging as it will be critical to keep a close eye on economic uncertainties. The good news is that airlines have built flexibility into their business models to handle the economic ups and downs that affect demand. The profitability of the airlines is negligible. Each passenger carried is expected to contribute on average just $1.11 to the industry's net profit. In most of the world, that's far less than it takes to buy a cup of coffee. Airlines should remain vigilant about any increase in taxes or infrastructure fees. And we will have to be especially careful with those manufactured in the name of sustainability. Our commitment is to achieve net zero CO2 emissions by 2050. 

regional overview 

Financial performance across all regions continues to improve from the depth of the pandemic losses seen in 2020. North America is the only region that returned to profitability in 2022, according to our estimates. Two regions will join North America in this regard in 2023: Europe and the Middle East, while Latin America, Africa and Asia-Pacific will remain in the red. 

North American airlines are expected to earn profits of $9.9 billion in 2022 and $11.4 billion in 2023. In 2023, passenger demand growth of 6.4% is expected to exceed the capacity growth of 5.5%. During the year, the region is expected to meet 97.2% of pre-crisis demand levels with 98.9% of pre-crisis capacity. 

Carriers in the region benefited from fewer travel restrictions and shorter durations than many other countries and regions. This boosted the large US domestic market, as well as international travel, especially across the Atlantic. 

European airlines are expected to experience a loss of $3.1 billion in 2022 and a profit of $621 million in 2023. In 2023, passenger demand growth of 8.9% is expected to outpace passenger capacity growth. 6.1%. During the year, the region is expected to meet 88.7% of pre-crisis demand levels with 89.1% of pre-crisis capacity. 

The war in Ukraine has curtailed the activities of some of the region's aircraft carriers. Operational disruptions in some of the mainland hubs are being resolved, but labor unrest continues in several locations. 

Asia-Pacific airlines are expected to post a loss of $10 billion in 2022, narrowing to a loss of $6.6 billion in 2023. In 2023, passenger demand growth of 59.8% is expected to outpace growth in the capacity of 47.8%. During the year, the region is expected to meet 70.8% of pre-crisis demand levels with 75.5% of pre-crisis capacity. 

Asia-Pacific is severely hampered by the impact of China's zero-COVID policies on travel and the region's losses are largely skewed by the performance of China's airlines facing the full impact of this policy on national and international markets. Taking a conservative view of the gradual easing of restrictions in China during the second half of 2023, however, we expect pent-up strong demand to fuel a quick rally on the back of such moves. The region's performance receives a significant boost from the profitable air cargo markets, in which it is the largest player. 

Middle East airlines are expected to post a loss of $1.1 billion in 2022 and a profit of $268 million in 2023. In 2023, passenger demand growth of 23.4% is expected to outpace the growth of the capacity of 21.2%. During the year, the region is expected to meet 97.8% of pre-crisis demand levels with 94.5% of pre-crisis capacity. 

The region has benefited from a degree of route diversion as a result of the war in Ukraine and, more significantly, from pent-up demand for travel using the region's extensive global networks as international travel markets reopened. 

Latin American airlines are expected to post a $2 billion loss in 2022, narrowing to $795 million in 2023. In 2023, passenger demand growth of 9.3% is expected to outpace capacity growth of 6 ,3 %. During the year, the region is expected to meet 95.6% of pre-crisis demand levels with 94.2% of pre-crisis capacity. 

Latin America has shown dynamism during the year, largely due to the fact that many countries began to lift their COVID-19 travel restrictions since mid-year. 

African airlines are expected to post a loss of $638 million in 2022, narrowing to a loss of $213 million in 2023. Passenger demand growth of 27.4% is expected to outpace capacity growth of 21 .9%. During the year, the region is expected to meet 86.3% of pre-crisis demand levels with 83.9% of pre-crisis capacity. 

Africa is particularly exposed to macroeconomic headwinds that have increased the vulnerability of several economies and made connectivity more complex. 

Bottom line 

The expected earnings for 2023 are minimal. But it is incredibly significant that we have turned the corner towards profitability. The challenges facing airlines in 2023, while complex, will fall within our areas of expertise. The industry has developed a great ability to adapt to fluctuations in the economy, major cost elements such as fuel prices and passenger preference. We see this demonstrated in the decade of strengthening profitability that followed the 2008 global financial crisis and ended with the pandemic. And encouragingly, there are plenty of jobs and most people are confident in traveling even with an uncertain economic outlook,” Walsh said. 

Passengers are taking advantage of the return of their freedom to travel. A recent IATA survey of travelers in 11 global markets revealed that nearly 70% are traveling as much or more than before the pandemic. And it is that, although the economic situation worries 85% of travelers, 57% have no intention of curbing their travel habits. 

The same study also demonstrated the important role that travelers see in the airline industry: 

-91% said air connectivity is critical to the economy 
-90% said that air travel is a necessity for modern life 
-87% said that air travel has a positive impact on societies, and 
-Of the 57% familiar with the UN Sustainable Development Goals (SDGs), 91% understand that air transport is a key contributor