IATA Forecasts Airlines’ Gradual Return To Profit While Costs Increase

GENEVA—The world’s airlines as a collective will be back in the black in 2023, IATA expects, but the net profit will be minuscule and several major regions, including Asia-Pacific, will remain in the red.

IATA released its 2022/2023 forecast on Dec. 6 at media briefings from its Geneva headquarters. Global airline net losses for 2022 are expected to be $6.9 billion on revenues of $727 billion—an improvement on the $9.7 billion loss forecast in June, and significantly better than the $42 billion loss in 2021 and $137.7 billion loss in 2020, the first year of the pandemic.

For 2023, IATA forecasts airlines will collectively post a $4.7 billion net profit on revenues of $779 billion. While a significant milestone—marking the first profit since 2019 when the industry posted a $26.4 billion net profit—the margin will be just 0.6%, showing the continued financial fragility of the industry. Costs, meanwhile, are expected to grow by 5.3% to $776 billion.

“There is much more ground to cover to put the global industry on a solid financial footing,” IATA Director General Willie Walsh said. Nevertheless, Walsh said he was optimistic going into 2023. “The headwinds we face are significant, but I would describe them as business-as-usual headwinds. We still have positive economic growth and while I’m an optimist at heart, I think I am also a realist,” he said.

The timelines for profitability return vary from region to region, with North American carriers ahead of the curve and the only ones expected to realize profits in 2022. Overall, IATA anticipates North American carriers will see a profit of $9.9 billion in 2022 and $11.4 billion in 2023. The large U.S. domestic market and the re-opening of the transatlantic market have boosted the financial position of American carriers.

The next two regions that are expected to return to profit will be Europe and the Middle East, IATA predicts. European carriers are expected to see a loss of $3.1 billion in 2022, transitioning to a $621 million profit in 2023. In 2023, passenger demand growth of 8.9% is expected to outpace capacity growth of 6.1%.  While the Russia-Ukraine war has curtailed activities of some carriers, direct impact on the industry is limited. The much bigger effect is how the war has pushed up oil prices.

Middle Eastern carriers are expected to post a loss of $1.1 billion in 2022 and a profit of $268 million in 2023. This is another region where demand growth, at 23.4%, will likely outpace capacity growth, at 21.2%, in 2023.

Latin American and African carriers will remain in the red through this year and 2023. For Latin America, the collective net loss is expected to be $2 billion in 2022, reducing to $795 million in 2023. For Africa, the 2022 loss of $638 million is expected to reduce to $213 million in 2023.

Asia-Pacific remains the region with the bleakest financial outlook. IATA expects to see carriers here post a loss of $10 billion this year and $6.6 billion in 2023. While many countries in the region have reopened their borders this year, China’s zero-COVID policies and travel restrictions are having a significant drag on the overall region. IATA does not expect Asia-Pacific to return to profitability until 2025.

IATA Chief Economist Marie Owens Thomsen noted that outside influences on airline fortunes include sharply slowing global GDP growth, from 3% in 2022 to an anticipated 2% in 2023, which economists regard as recessionary. However, Owens Thomsen also described it as an unusual “job-rich economic slowdown,” which helps insulate the effects.

“We expect this to change sometime in 2023, but as more people are employed than ever before, it’s underpinning growth,” she said.

The high price of oil, and in particular a historic crack spread—the premium paid for jet fuel versus Brent crude—is another influence. Total airline fuel spend for 2023 is expected to be $229 billion, or 30% of expenses. That is based on Brent crude costing $92.3/barrel and jet kerosene averaging $111.9/barrel.

Walsh warned that even where profits are returning, they are “razor thin,” while costs—particularly for fuel and related to 2050 carbon net-zero emissions goals—will increase significantly.

“Revenues have to reflect the increase in costs,” Walsh said. “This is not an answer that a lot of people want to hear—that is, if oil prices continue to go up as the industry transitions to net zero, then ticket prices will have to reflect that, but ultimately we will have to pass on the costs.”