The global airline industry is expected to be back in the black in 2023 for the first time since 2019, according to the International Air Transport Association (IATA).
Next year, airlines are tipped to post a net profit of $4.7 billion on revenues of $779 billion – a 0.6% net profit margin – versus $26.4 billion (3.1% net profit margin in 2019).
The forecast comes as airlines battle to claw back losses inflicted by the pandemic amid growing economic uncertainties, as GDP growth slows.
Airline net losses are expected to reach $6.bn – an improvement on the $9.bn loss recorded in 2022.
In 2021 and 2020, the airline industry suffered devastating losses of $4bn and $137.bn, respectively.
Rebounding passenger demand is expected to generate $522bn in revenues and reach 85.5% of 2019 levels over the course of 2023, though the path remains clouded owing to continued uncertainties around China’s zero-Covid policies.
However, it has emerged this week that the country is beginning to distance itself from the strict protocols imposed on towns and cities in recent years following extraordinary public protests, as China begins to ‘live with the virus’ akin to the rest of the world.
Willie Walsh, Director General, IATA, said: “Resilience has been the hallmark for 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 a great achievement considering the scale of the financial and economic damage caused by government imposed pandemic restrictions.
“But a $4.7 billion profit on industry revenues of $779 billion also illustrates that there is much more ground to cover to put the global industry on a solid financial footing. Many airlines are sufficiently profitable to attract the capital needed to drive the industry forward as it decarbonises.
“But many others are struggling for a variety of reasons. These include onerous regulation, high costs, inconsistent government policies, inefficient infrastructure and a value chain where the rewards of connecting the world are not equitably distributed.”
IATA adds that the economic and geopolitical environment poses several potential risks to the 2023 outlook.
The looming risk of recession for some economies remains, despite indications that more aggressive inflation-fighting interest rate hikes could be curbed.
A continuance of China’s zero-Covid policies ‘would adversely affect the outlook’, adds IATA [though as mentioned more positive signs have emerged of an easing of this approach – Ed] as markets look to the gradual reopening of the country to international traffic in the second half of the year.
Proposals for increased infrastructure charges or taxes to support sustainability efforts could also ‘eat away at profitability in 2023’, states the association.
“Despite the economic uncertainties, there are plenty of reasons to be optimistic about 2023,” commented Walsh. “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.
“The expected profits for 2023 are razor thin. But it is incredibly significant that we have turned the corner to profitability. The challenges that airlines will face in 2023, while complex, will fall into our areas of experience. The industry has built a great capability to adjust to fluctuations in the economy, major cost items like fuel prices, and passenger preference.
“We see this demonstrated in the decade of strengthening profitability following the 2008 global financial crisis and ending with the pandemic. And encouragingly, there are plenty of jobs and the majority of people are confident to travel even with an uncertain economic outlook.”