The International Air Transport Association (IATA) has upgraded its outlook for the airline industry in 2023, anticipating a stronger profitability compared to previous forecasts. The industry is expected to record a net profit of USD 9.8 billion, more than double the earlier projection of USD 4.7 billion.
Operating profits are also predicted to reach USD 22.4 billion, significantly surpassing the previous estimate of USD 3.2 billion for the year.
The anticipated total revenues for the industry are also projected to grow by 9.7 per cent year over year, reaching USD 803 billion. This marks the first time since 2019 that industry revenues are expected to surpass the USD 800 billion mark. The growth in expenses is anticipated to be contained at an 8.1 per cent annual increase.
In terms of passenger numbers, approximately 4.35 billion individuals are expected to travel in 2023, which is closing in on the pre-pandemic figure of 4.54 billion recorded in 2019.
IATA’s May 2023 passenger polling data supports the optimistic outlook, with 41 per cent of travellers indicating they expect to travel more in the next 12 months than in the previous year and 49 per cent expect to undertake the same level of travel. Moreover, 77 per cent of respondents indicated that they were already traveling as much or more than they did pre-pandemic.
The high demand for travel in many markets is keeping yields strong with a modest 1.1 per cent decline expected in 2023 compared to 2022 levels. Efficiency levels are high with an expected average passenger load factor of 80.9 per cent for 2023. That is very near the 2019 record performance of 82.6 per cent.
“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 return to net profitability, even at a 1.2 per cent net profit margin, is considered a significant accomplishment given the economic uncertainties faced, said IATA. This follows the unprecedented losses of USD 183.3 billion experienced by the aviation industry from 2020 to 2022, resulting in an average net profit margin of -11.3 per cent during that period.
It is also worth noting that the industry entered the Covid-19 crisis after a historic period of profitability, with an average net profit margin of 4.2 per cent from 2015 to 2019.
While the outlook for the industry is positive, challenges remain in repairing damaged balance sheets and providing sustainable returns on capital for many airlines. Walsh emphasised the need to address these challenges, as airlines are currently making an average of USD 2.25 per passenger.
The outlook drivers for the industry, according to IATA’s report, include rising revenues outpacing expenses, with passenger revenues expected to reach USD 546 billion, reflecting a 27 per cent increase compared to 2022. Passenger traffic is also expected to strengthen throughout the year, reaching 87.8 per cent of 2019 levels.
Expenses are expected to grow to USD 781 billion, primarily driven by jet fuel costs, which are forecasted to average USD 98.5 per barrel in 2023. Non-fuel expenses have been well-controlled by airlines, resulting in a decrease in non-fuel unit costs per available tonne kilometer (ATK) to 39 cents per ATK, returning to pre-Covid levels.
The outlook for the airline industry is not without risks. Economic and geopolitical factors could impact profitability, including the pace of inflation fighting measures, the war in Ukraine, supply chain issues, and potential increases in regulatory costs.
Financial performance across different regions varies, with North America leading in terms of profitability. European carriers are expected to strengthen their profitability in 2023, while Asia Pacific carriers are experiencing a recovery in passenger volumes and capacity.
The Middle East has shown significant improvement, with a high passenger load factor and a return to international connectivity. Africa continues to face challenges but is moving towards overall industry profitability.
The way forward
“Resilience is the story of the day and there are many good reasons for optimism. Achieving profitability at an industry level after the depths of the Covid-19 crisis opens up much potential for airlines to reward investors, fund sustainability, and invest in efficiencies to connect the world even more effectively. That’s a big ‘to do’ list to achieve with just a 1.2 per cent net profit margin. That’s why we call on governments to keep their focus on initiatives that will strengthen safe, sustainable, efficient, and profitable connectivity,” said Walsh.
The priorities for 2023 outlined by Walsh include incentivising sustainable aviation fuel (SAF) production to accelerate progress towards achieving net-zero carbon emissions. It is also crucial to maintain the integrity of CORSIA, the economic measure applied to international aviation, while eliminating inefficiencies in air traffic management and ensuring consistent adherence to global standards, he advised.
IATA further revealed that the passengers place high expectations on the airline industry, seeking a safe, sustainable, efficient, and profitable travel experience. A recent IATA poll conducted across 11 global markets revealed that 81 per cent of respondents developed a greater appreciation for the freedom that flying provides after the pandemic.
The study also emphasised the vital role that travellers attribute to the airline industry, with 90 per cent recognising air connectivity as crucial to the economy, 91 per cent considering air travel a necessity for modern life, and 88 per cent acknowledging its positive impact on societies.
Furthermore, 82 per cent of respondents recognised the global air transport network as a key contributor to the United Nations Sustainable Development Goals (SDGs). Overall, 96 per cent expressed satisfaction with their last flight, and 77 per cent believed that flying provided good value for money.