Travel recovery points to profitability in 2023

The International Air Transport Association (IATA) has announced an upgrade to its forecast for the financial performance of the airline industry in 2022 as the recovery from the COVID-19 crisis accelerates.

Notable predictions include:

  • Industry losses are expected to drop to -$9.7 billion (an improvement from the October 2021 forecast of a loss of $11.6 billion) with a net loss margin of -1.2%. This is a significant improvement from losses of $137.7 billion (-36.0% net margin) in 2020 and $42.1 billion (-8.3% net margin) in 2021.
  • Industry-wide profitability in 2023 appears within reach, as North America is already expected to generate $8.8 billion in profits in 2022.
  • Efficiency gains and revenue improvements help airlines reduce losses even as labor and fuel costs rise (driven by a 40% increase in global oil prices and a widening crack this year).
  • The industry’s optimism and commitment to reducing emissions are evident in the expected net deliveries of more than 1,200 aircraft in 2022.
  • Strong pent-up demand, lifting of travel restrictions in most markets, lower unemployment in most countries, and expansion of personal savings are driving up demand that will see passenger numbers reach 83% of pre-pandemic levels in 2022.
  • Despite the economic challenges, freight volumes are expected to hit a record high of 68.4 million tons in 2022.

“Airlines are resilient. People are traveling in greater numbers than ever before. Freight is doing well against a backdrop of rising economic uncertainty. Losses will be cut to $9.7 billion this year and profitability looms for 2023. It is a time for optimism, even if it is still There are challenges around costs, particularly fuel, and some ongoing restrictions in a few key markets,” said Willie Walsh, IATA Director General.

Outlook drivers

Revenue is increasing as COVID-19 restrictions ease and people return to travel. The challenge for 2022 is to keep costs in check.

“Reducing losses is the result of hard work to control costs as the industry ramps up. The improvement in the financial outlook comes from an increase in holding costs of 44% while revenues increased by 55%. As the industry returns to more normal production levels with higher fuel costs likely to remain for a while Over time, profitability will depend on continued cost control. This includes the value chain. Our suppliers, including airports and air navigation service providers, must focus on controlling costs like their customers to support the industry’s recovery.”

Revenues

Industry revenue is expected to reach $782 billion (+54.5% in 2021), 93.3% of 2019 levels. Total flights operated in 2022 are expected to reach 33.8 million, which is 86.9% of 2019 levels. (38.9 million flights).

Passenger revenue It is expected to represent $498 billion in industry revenue, more than double the $239 billion that was generated in 2021. Scheduled passenger numbers are expected to reach 3.8 billion. Yields are expected to rise 5.6%. This follows a yield development of -9.1% in 2020 and +3.8% in 2021.

Shipping Returns It is expected to represent $191 billion in industry revenue. This is slightly down from the $204 billion recorded in 2021, but nearly double the $100 billion made in 2019. Overall, the industry is expected to move more than 68 million tons of cargo in 2022, which is Record. With the trading environment slowing slightly, merchandise yields are expected to decline by 10.4% compared to 2021. This only partially reflects an increase in yield of 52.5% in 2020 and 24.2% in 2021.

expenses

Total expenses are expected to rise to $796 billion. This represents a 44% increase in 2021, which reflects both the larger OSC and the cost of inflation on some key items.

fuelAt $192 billion, fuel is the industry’s largest cost component in 2022 (24% of total costs, up from 19% in 2021). This is based on a forecast average price of Brent crude of $101.2 per barrel and $125.5 for jet kerosene. Airlines are expected to consume 321 billion liters of fuel in 2022 compared to 359 billion liters in 2019.

The war in Ukraine kept Brent crude oil prices high. However, fuel will account for about a quarter of costs in 2022. A special feature of this year’s fuel market is the large difference between crude oil prices and jet fuel. Jet crack prevalence remains well above historical standards, mostly due to capacity limitations at refineries. Underinvestment in this area could mean that the spread will remain high until 2023. Meanwhile, higher oil and fuel prices are likely to lead airlines to improve fuel efficiency – whether through more efficient aircraft or through operational decisions.

the work: Labor is the second highest operating cost component of airlines. Direct employment in the sector is expected to reach 2.7 million, up 4.3% from 2021 as the industry rebuilds from the significant decline in activity in 2020. However, employment is still somewhat below the 2.93 million jobs in 2019 and is expected to remain less than that. This level for some time. Unit labor costs are expected to be 12.2 cents/ton kilometer (ATK) in 2022, which is mainly back to 2019 levels when it was 12.3 cents/attack.

The time required to recruit, train, complete security/background checks and perform other necessary processes before employees are “ready to work” is a challenge for the industry in 2022. In some cases, staffing delays may act as a limitation on an airline’s ability to meet passenger demand.

In countries where the economic recovery from the pandemic has been rapid and the unemployment rate has been low, tight labor markets and skills shortages are likely to add to the pressure on wages. The industry’s wage bill is expected to reach $173 billion in 2022, up 7.9% from 2021, and out of proportion to the 4.3% increase in total jobs.

Macroeconomic factors

The global macroeconomic background is critical to the industry outlook. The forecast includes an assumption of strong global GDP growth of 3.4% in 2022, down from a strong recovery of 5.8% last year. Inflation has risen and is expected to remain high throughout 2022, and to decline over the course of 2023. While nominal interest rates are rising, real interest rates are expected to remain low or negative for a sustained period.

risk factors

There are a number of risk factors associated with this outlook.

The war in Ukraine

The impact of the war in Ukraine on aviation pales in comparison to the unfolding human tragedy. Projections assume that the war in Ukraine will not escalate beyond its borders. Among the many negative effects of the aviation sector escalation, rising fuel costs and declining demand due to lower consumer confidence are critical.

Inflation, interest rates and exchange rates

Interest rates are rising as central banks battle inflation. Aside from those who are debt-bearers (who will see inflation reduce the value of their debt), inflation is harmful and has an economic disincentive to tax by reducing purchasing power. There are downside risks to this forecast if inflation continues to rise, and central banks continue to raise interest rates.

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

COVID-19

The primary demand for travel is strong. But governments’ responses to COVID-19 have ignored WHO advice that closing borders is not an effective way to control the spread of the virus. The projections assume that the strong and growing population immunity to COVID-19 means that these policy mistakes will not be repeated. However, there is a downside risk if governments revert to quick reflexes to close borders to counter future disease outbreaks.

Governments must have learned their lessons from the COVID-19 crisis. Border closures are causing economic pain, but they do little in terms of controlling the spread of the virus. With high levels of population immunity, advanced treatment methods and monitoring measures, the risks of COVID-19 can be managed. Currently, there are no circumstances in which the human and economic costs of further COVID-19 border closures can be justified.”

China

This forecast assumes a gradual easing of COVID-19 restrictions in the second half of 2022. An early departure from China’s zero COVID policy would, of course, improve the outlook for the industry. The prolonged implementation of COVID-19 policy will continue to frustrate the world’s second largest domestic market and wreak havoc on global supply chains.

Regional Tour

Financial performance in all regions is expected to improve in 2022 compared to 2021 (all regions improved in 2021 compared to 2020 as well).

North Amarica It is expected to remain the strongest performing region and the only region to return to profitability in 2022. Supported by the large US domestic market and the reopening of international markets, including the North Atlantic, net profit is expected to reach $8.8 billion in 2022. It is expected that Demand (RPKs) is at 95.0% of pre-crisis (2019) levels and capacity is 99.5%.

Europe: In Europe, the war between Russia and Ukraine will continue to disrupt travel patterns within Europe and between Europe and Asia Pacific. However, the war is not expected to derail the travel recovery, as the region approaches profitability in 2022, with a net loss of $3.9 billion expected. Demand (RPKs) are expected to reach 82.7% of pre-crisis (2019) levels, capacity 90.0%.

for Asia Pacific Airlines, strict and permanent travel restrictions (particularly in China), along with the uneven vaccine rollout, have delayed the region’s recovery so far. With fewer restrictions, the demand for travel is expected to increase rapidly. Net losses in 2022 are expected to drop to $8.9 billion. Demand (RPKs) is expected to reach 73.7% from pre-crisis (2019) levels, and capacity is 81.5%.

Traffic volumes in Latin america It recovered strongly in 2021, supported by local markets and relatively less travel restrictions in many countries. However, the financial outlook for some airlines remains fragile and the region is expected to post a net loss of $3.2 billion this year. Demand (RPKs) is expected to reach 94.2% of pre-crisis (2019) levels, and capacity 93.2%.

In the The Middle EastThe reopening of international routes and long-haul flights in particular this year will provide a welcome boost for many. Regionally, net losses are expected to shrink to $1.9 billion in 2022, from a $4.7 billion loss last year. Demand (RPKs) is expected to reach 79.1% of pre-crisis (2019) levels, and absorptive capacity 80.5%.

In AfricaThe drop in vaccination rates has dampened the revival of air travel in the region thus far. However, it is likely to catch up somewhat this year, which will contribute to improved financial performance. Net losses are expected to be $0.7 billion in 2022. Demand (RPKs) are expected to reach 72.0% of pre-crisis levels (2019), and capacity is 75.2%.

Leave a Comment