Sector recovery expected to rebuild airline profitability

AMMAN — The International Air Transport Association (IATA) upgraded this week its outlook for the airline industry’s 2022 financial performance as the pace of recovery from the fall-out of the COVID-19 crisis is going faster, according to IATA’s statement.

IATA is currently holding its 78th Annual General Meeting and World Air Transport Summit in Doha, Qatar. 

Hosted by Qatar Airways, this event brings together leading figures from airlines, the aviation value chain and governments as the aviation industry faces complex and dynamic operating, business and geopolitical environments, according to news websites.

Industry losses are expected to stand around $9.7 billion from $11.6 billion loss — the October 2021 forecast. 

In 2023, industry-wide profitability is expected to have more thrust as North America is already expected to deliver an $8.8 billion profit in 2022, said the statement.

Efficiency gains and improving yields are helping airlines to reduce losses even with rising labour and fuel costs — the latter driven by a +40 per cent increase.

At $192 billion, fuel is the industry’s largest cost item in 2022, as it accounts for 24 per cent of overall costs, up from 19 per cent in 2021. This is based on an expected average price of $101.2 per barrel for Brent crude and $125.5 for jet kerosene. Airlines are expected to consume 321billion liters of fuel in 2022 compared with the 359 billion liters consumed in 2019.

Industry optimism is evident in the expected net delivery of over 1,200 aircraft in 2022.

Strong pent-up demand, the lifting of travel restrictions in most markets, low unemployment in most countries, and expanded personal savings are fueling resurgence in demand that will see passenger numbers reach 83 per cent of pre-pandemic levels in 2022. Cargo volumes are expected to set a record high of 68.4 million tonnes in 2022, according to the International Air Transport Association.

“Airlines are resilient. People are flying in ever greater numbers. And cargo is performing well against a backdrop of growing economic uncertainty. Losses will be cut to $9.7 billion this year and profitability is on the horizon for 2023. It is a time for optimism, even if there are still challenges on costs, particularly fuel, and some lingering restrictions in a few key markets,” said Willie Walsh, IATA’s director general.

In countries where the economic recovery from the pandemic has been swift and the unemployment rate is low, tight labour markets and skill shortages are likely to contribute to upward pressure on wages. The industry’s wage bill is expected to reach $173 billion in 2022 which is 7.9 per cent higher than the 2021 figure.

Moreover, the global macroeconomic backdrop is critical for the industry outlook. The forecast incorporates an envisaged 3.4 per cent gross domestic growth in 2022, down from the 5.8 per cent rebound last year. Inflation has risen and is expected to remain elevated throughout 2022, waning over the course of 2023.

 Nominal interest rates are rising but real interest rates are expected to remain low or negative for a sustained period.

There are several risk factors, mainly the impact of the war in Ukraine. 

Moreover, the record strength of the US dollar, if it continues, will have a negative impact as a strong US dollar is growth dampening, in general. It increases the local-currency price of all USD-denominated debt, and adds to the burden of paying for USD-denominated fuel imports, as well.

In the Middle East, this year’s reopening of international routes and long-haul flights will provide a welcome boost for many. Region-wide, net losses are expected to narrow to $1.9 billion in 2022, from a $4.7 billion loss last year, according to IATA’s statement.