The International Air Transport Association (IATA), the industry trade group for airlines, predicts that the airline sector would return to profitability in 2023, around two years after the Covid-19 outbreak left it reeling.
The group, which has its headquarters in Geneva, also anticipates that airlines will report a meagre net profit of $4.7 billion at a net profit margin of 0.6%. It will mark the airline sector's first profit since 2019, when net profits totaled $26.4 billion, or a 3.1% net profit margin.
The estimated $6.9 billion loss for the airline industry in 2022 is a decrease from the $9.7 billion loss projected for 2022 in IATA's June 2022 projection. This is much better than the losses realised in 2021 and 2020, which were $42 billion and $137.7 billion, respectively.
Significant risks to the prognosis include the potential for some economies to go into recession, the extension of China's Zero Covid policies, and suggestions for higher infrastructure fees or taxes to support sustainability initiatives.
The results are based on a poll that IATA had conducted in 11 markets, including Chile, the US, Canada, the UK, France, Germany, the UAE, India, Singapore, Australia, and Japan, in November. 4,700 people were surveyed for it, and it was done independently by the UK-based market research firm Motif.
About 300 airlines, or 83% of all airlines operating globally, are represented by IATA.
Revenues of $522 billion are anticipated to be generated by the passenger industry in 2023. Over the course of 2023, passenger demand is predicted to rise to 85.5% of 2019 levels. This estimate, which limits both internal and international markets, takes into consideration a lot of the uncertainty caused by China's Zero Covid policy. Nevertheless, 4.2 billion passengers are anticipated to fly, marking the first time since 2019 that passenger counts would reach 4 billion.
Despite demand increasing more quickly than passenger capacity at (+)18.0 percent compared to (+)21.1%, passenger yield is anticipated to soften by 1.7% as a result of slightly lower energy costs being passed on to passengers.
It's interesting to note that in 2023, pressure on the freight sector is expected to intensify. The projected revenue is $149.4 billion, which is $48.6 billion more than in 2019 but $52 billion less than in 2022. Due to the uncertain economy, cargo volumes are predicted to drop from a peak of 65.6 million tonnes in 2021 to 57.7 million tonnes. Yields are anticipated to significantly decline as belly capacity increases in tandem with the rebound in passenger markets.
IATA anticipates a 22.6 percent decrease in cargo yields, primarily in the last quarter of the year when the effects of inflation-cooling measures are anticipated to be felt. To put the drop in perspective, freight yields increased by 52.5% in 2020, 24.2% in 2021, and 7.2% in 2022. Cargo yields are far above pre-pandemic levels despite the sizable and anticipated fall.
Costs as a whole are projected to increase by 5.3% to $776 billion. A return to profitability is supported by the expectation that this increase will be 1.8 percentage points lower than revenue growth. Still there are cost constraints brought on by labour, skill, and capacity shortages. The price of the infrastructure is another issue.
However, it is anticipated that non-fuel unit costs will decline to 39.8 cents/available tonne kilometre (ATK) from 41.7 cents/ATK in 2022 and almost match the 39.2 cents/ATK attained in 2019.
Additionally, airline efficiency improvements are anticipated to push passenger load factors to 81.0%, just a little bit lower than the 82.60% attained in 2019.
An estimated $229 billion, or 30% of expenses, will be spent on jet fuel, also known as aviation turbine fuel (ATF), in 2023. For domestic carriers in India, the numerous tariffs and levies raise this to 40%.
Based on Brent crude at $92.3 per barrel, down from an average of $103.2 per barrel in 2022, IATA's estimate is made. As opposed to $138.8 per barrel, an average price of $111.9 is anticipated for jet fuel. After the initial disruptions caused by the ongoing crisis in Ukraine, the fuel supply has since relatively stabilised, as evidenced by this drop. The crack spread, often known as the premium, for jet fuel is still very close to historical highs.
Impact of China's zero Covid regulations on travel on the Asia-Pacific region, which also includes India, limits growth. IATA anticipates that a speedy recovery would be fueled by high pent-up demand, taking a conservative stance on the gradual lifting of restrictions in China during the second half of 2023. Profitable air cargo markets would significantly improve the region's performance in which it is the largest player.
