Dramatic recovery in sight for airlines

June 5, 2023

Almost as many passengers this year as in 2019 and a return to profits: after being torpedoed by the pandemic, the global airline sector is in the midst of a spectacular recovery, which however remains fragile according to the companies.

These expect to carry 4.35 billion passengers worldwide this year, not far from the record of 4.54 billion in 2019, their main international association, Iata, announced on Monday at a general meeting in Istanbul. .

This vigorous recovery in traffic, thanks in particular to the reopening of China, will result in a return to profits for carriers. They are expected to make $9.8 billion in net profit this year – double what Iata had previously expected, which has also halved its loss estimates for 2022 to $3.6 billion.

The overall turnover of air carriers should reach 803 billion dollars, within reach of 838 billion in 2019, according to Iata, which has therefore revised its previous projections upwards (779 billion).

While industry operating margins will remain very low this year at 1.2%, these profits, the first since the pandemic began, will mark a dramatic improvement from the $42 billion lost in 2021 and the sinkhole. of 2020 (137.7 billion).

Not all geographic areas will return to profit this year, however, warned Iata. North American, European and Middle Eastern carriers are expected to be largely in the green, with cumulative $11.5, $5.1 and $2 billion respectively.

But companies in the Asia-Pacific region (-6.9 billion dollars), Latin America (-1.4 billion) and Africa (-500 million) will remain in deficit.

“Airline financial performance is better than expected. Stronger profitability is supported by several positive developments,” said Willie Walsh, Iata’s chief executive.

Among them: “China lifted Covid-19 restrictions ahead of schedule. Freight revenues remain higher than pre-pandemic, although volumes do not. are starting to lighten up. Kerosene prices, still high, contracted in the first half of the year,” Walsh added.

Airlines are expected to spend some $215 billion on fuel in 2023, or 28% of their costs, at an average jet fuel price of $98.5 per barrel, according to Iata. In 2022, this price was $135.6 and forced carriers to devote nearly 30% of their expenses to it, compared to 24% in 2019.

Walsh tempered that optimism, however, by noting that on average, airlines earned just $2.25 per passenger.

In this context, “many companies will find it difficult to restore their accounts and offer sustainable returns on investment” to their shareholders, conceded the leader of Iata.

The organization, which brings together some 300 airlines claiming 83% of global passenger air traffic, noted that the profitability of the sector remained “fragile” and could be affected by several factors.

Central banks have raised rates to fight inflation while trying to stave off a recession, but that risk remains, Iata noted. “If a recession causes job losses, the outlook for the sector could turn negative,” according to Iata.

Similarly, “the war in Ukraine has no consequences on the profitability of most companies”, but the sector would suffer from a new geopolitical escalation, the organization underlined in substance.

Topic on everyone’s lips at the Istanbul rally, shortages of raw materials and parts are affecting the sector’s ability to grow, Iata also said.

Due to breaks in supply chains “that aircraft manufacturers and engine manufacturers have failed to resolve”, companies are struggling to “maintain and deploy their current fleets”, criticized the organization.

In 2020, the first year of the pandemic, the number of air passengers had collapsed by 60% to 1.8 billion. It had rebounded slightly in 2021 to 2.3 billion and then recovered in 2022 to 74% of the pre-crisis level, or some 3.3 billion travelers, according to the International Civil Aviation Organization, an agency of the UN.