The International Air Transport Association (IATA) expects a return to profitability for the global airline industry in 2023 as airlines continue to cut losses stemming from the effects of the COVID-19 pandemic to their business in 2022. 

In 2023, airlines are expected to post a small net profit of $4.7 billion—a 0.6% net profit margin. It is the first profit since 2019 when industry net profits were $26.4 billion (3.1% net profit margin). 

In 2022, airline net losses are expected to be $6.9 billion (an improvement on the $9.7 billion loss for 2022 in IATA’s June outlook). This is significantly better than losses of $42.0 billion and $137.7 billion that were realized in 2021 and 2020 respectively.

2022
 
Improved prospects for 2022 stem largely from strengthened yields and strong cost control in the face of rising fuel prices. 
 
Passenger yields are expected to grow by 8.4% (up from the 5.6% anticipated in June). Propelled by that strength, passenger revenues are expected to grow to $438 billion (up from $239 billion in 2021). 
 
Air cargo revenues played a key role in cutting losses with revenues expected to reach $201.4 billion. That is an improvement compared with the June forecast, largely unchanged from 2021, and more than double the $100.8 billion earned in 2019.
 
Overall revenues are expected to grow by 43.6% compared to 2021, reaching an estimated $727 billion.
 
Most other factors evolved in a negative manner following a downgrade of GDP growth expectations (from 3.4% in June to 2.9%), and delays in removing COVID-19 restrictions in several markets, particularly China. IATA’s June forecast anticipated that passenger traffic would reach 82.4% of pre-crisis levels in 2022, but it now appears that the industry demand recovery will reach 70.6% of pre-crisis levels. Cargo, on the other hand, was anticipated to exceed 2019 levels by 11.7%, but that is now more likely be moderated to 98.4% of 2019 levels.
 
On the cost side, jet kerosene prices are expected to average $138.8/barrel for the year, considerably higher than the $125.5/barrel expected in June. That reflects higher oil prices exaggerated by a jet crack spread that is well-above historic averages. Even with lower demand leading to reduced consumption, this raised the industry’s fuel bill to $222 billion (well above the $192 billion anticipated in June).

2023

In 2023 the airline industry is expected to tip into profitability. Airlines are anticipated to earn a global net profit of $4.7 billion on revenues of $779 billion (0.6% net margin). This expected improvement comes despite growing economic uncertainties as global GDP growth slows to 1.3% (from 2.9% in 2022). 

Main Drivers

Passenger: The passenger business is expected to generate revenues of $522 billion. Passenger demand is expected to reach 85.5% of 2019 levels over the course of 2023. Much of this expectation takes into account the uncertainties of China’s Zero COVID policies which are constraining both domestic and international markets. Nonetheless, passenger numbers are expected to surpass the four billion mark for the first time since 2019, with 4.2 billion travelers expected to fly. Passenger yields, however, are expected to soften (-1.7%) as somewhat lower energy costs are passed through to the consumer, despite passenger demand growing more quickly (+21.1%) than passenger capacity (+18.0%).
 
Cargo: Cargo markets are expected to come under increased pressure in 2023. Revenues are expected to be $149.4 billion, which is $52 billion less than 2022 but still $48.6 billion stronger than 2019. With economic uncertainty, cargo volumes are expected to decrease to 57.7 million tonnes, from a peak of 65.6 million tonnes in 2021. As belly capacity grows in line with the recovery in passenger markets, yields are expected to take a significant step back. IATA expects a fall of 22.6% in cargo yields, mostly in the latter part of the year when the impact of inflation-cooling measures are expected to bite. To put the yield decline in context, cargo yields grew by 52.5% in 2020, 24.2% in 2021 and 7.2% in 2022. Even the sizable and expected decline leaves cargo yields well-above pre-COVID levels.
 
Costs: Overall costs are expected to grow by 5.3% to $776 billion. That growth is expected to be 1.8 percentage points below revenue growth, thus supporting a return to profitability. Cost pressures are still there from labor, skill and capacity shortages. Infrastructure costs are also a concern. 
 
 Nonetheless, non-fuel unit costs are expected to fall to 39.8 cents/available tonne kilometer (down from 41.7 cents/ATK in 2022 and nearly matching the 39.2 cents/ATK achieved in 2019). Airline efficiency gains are expected to drive passenger load factors to 81.0%, just slightly below the 82.6% achieved in 2019.
 
 The total fuel spend for 2023 is expected to be $229 billion—consistent at 30% of expenses. IATA’s forecast is based on Brent crude at $92.3/barrel (down from an average of $103.2/barrel in 2022). Jet kerosene is expected to average $111.9/barrel (down from $138.8/barrel). This decrease reflects a relative stabilization of fuel supply after the initial disruptions from the war in Ukraine. The premium charged for jet fuel (crack spread) remains near historical highs.
 
Risks: The economic and geopolitical environment presents several potential risks to the 2023 outlook. 

While indications are that there could be an easing of aggressive inflation-fighting interest rate hikes from early 2023, the risk of some economies falling into recession remains. Such a slowdown could affect demand for both passenger and cargo services. It would, however, likely come with some mitigation in the form of lower oil prices. 

The outlook anticipates a gradual re-opening of China to international traffic and the easing of domestic COVID-19 restrictions progressively from the second half of 2023. A prolongation of China’s Zero COVID policies would adversely affect the outlook.

If materialized, proposals for increased infrastructure charges or taxes to support sustainability efforts could also eat away at profitability in 2023. 

Regional Round Up

 All regions’ financial performance continues to improve since the depth of the pandemic losses seen in 2020. North America is the only region to return to profitability in 2022, based on our estimates. Two regions will join ranks with North America in this respect in 2023: Europe and the Middle East, while Latin America, Africa, and Asia-Pacific will remain in the red.

Passengers are taking advantage of the return of their freedom to travel. A recent IATA poll of travelers in 11 global markets revealed that nearly 70% are traveling as much or more than they did prior to the pandemic. And, while the economic situation is concerning to 85% of travelers, 57% have no intention to curb their travel habits.

 The same study also demonstrated the important role that travelers see the airline industry playing:

91% said that connectivity by air is critical to the economy

90% said that air travel is a necessity for modern life

87% said that air travel has a positive impact on societies, and

Of the 57% familiar with the UN Sustainable Development Goals (SDGs), 91% understand that air transport is a key contributor.