IATA notes reasons to be optimistic in 2023 but says profits still ‘razor thin’

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With airlines continuing to cut pandemic-related losses in 2022, the global airline industry is expected to finally return to profitability in 2023, a recent outlook released by the International Air Transport Association (IATA) suggests.  

How much will the airline industry lose in 2022?  

IATA estimates that airline net losses will stand at approximately $6.9 billion at the end of 2022 compared $42.0 billion and $137.7 billion recorded in 2021 and 2020 respectively, IATA noted in the outlook, which was released on December 6, 2022.  

The association also expects an 8.4% increase in passenger traffic compared to last year, leading to a significant increase in passenger revenues, reaching $438 billion compared to $239 billion in 2021.   

Overall revenues are expected to grow by 43.6% compared to 2021, reaching an estimated $727 billion, IATA added.  

According to IATA’s Director General Willie Walsh, despite facing rising operating costs, labor shortages, strikes, and other disruptions across the world’s key hubs during 2022, airlines still managed to cut losses due to an increased demand for air travel.  

Air cargo played a key role for air carriers in cutting losses, with IATA predicting that cargo-related revenues will almost double to a total of $201.4 billion compared to $100.8 billion in 2019.  

“We will 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,” Walsh said.  

Improvement despite growing economic uncertainties   

In 2023 airlines will witness the first financial recovery and will be able to gain their first profit since 2019, IATA’s analysts said.   

Air carriers are expected to record a net profit of around $4.7 billion in 2023. However, growth will remain a low improvement in comparison to an industry profit of $26.4 billion posted in 2019.  

“This expected improvement comes despite growing economic uncertainties as global GDP growth slows to 1.3% (from 2.9% in 2022),” the report added.   

However, according to Walsh, the expected profits for 2023 are “razor thin”.  

“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 one of these variables has the potential to shift the balance into negative territory. Vigilance and flexibility will be key,” Wash explained.  

IATA’s experts say that high passenger demand will become the main driver to achieve the first profitable year after the pandemic downturn. Global passenger numbers are predicted to grow to 85.5% of 2019 levels. This will generate approximately $552 billion in airline industry revenues.   

“Much of this expectation takes into account the uncertainties of China’s Zero COVID policies which are constraining both domestic and international markets. Nonetheless, passenger numbers are expected to surpass the four billion mark for the first time since 2019, with 4.2 billion travelers expected to fly,” IATA said.  

Global air cargo market could face “increased pressure”  

Meanwhile, the global air cargo market could come “under increased pressure”. Estimated revenues are expected to stand at 149.4 billion, which is $52 billion less than in 2022. However, such a performance will still be $48.6 billion stronger than recorded by airlines in 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,” according to the association data.  

“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. To put the yield decline in context, cargo yields grew by 52.5% in 2020, 24.2% in 2021, and 7.2% in 2022. Even the sizable and expected decline leaves cargo yields well-above pre-COVID levels,” IATA concluded.  

 

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