KUALA LUMPUR: The International Air Transport Association (IATA) has projected that the global airline industry would return to profitability in 2023 amid a nearly three-year loss mostly due to the COVID-19 pandemic.
IATA's director general Willie Walsh said airlines are expected to post US$4.7 billion of net profit, a first since 2019, on the back of US$779 billion revenue despite growing economic uncertainties worldwide.
"Despite the economic uncertainties, there are plenty of reasons to be optimistic about 2023."
"Lower oil price inflation and continuing pent-up demand should help to keep costs in check as the strong growth trend continues," Walsh said at IATA's Global Media Day this week.
Passenger revenue would mainly drive profitability next year as it is expected to generate US522 billion with 4.2 billion travellers flying, the first time that the number would surpass the four billion mark since 2019.
Walsh said the forecast for global passenger demand is 85.5 per cent of 2019 levels while the projected revenue and demand take into account the uncertainties of China's zero Covid policies that constrains domestic and international markets.
However, air cargo demand in 2023 is expected to decrease with volumes lowering to 57.7 million tonnes from a peak of 65.6 million tonnes in 2021.
Cargo revenues would possible be US$149.4 billion, less US$52 billion than in 2022 but higher than 2019.
"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 per cent in cargo yields, mostly in the latter part of the year when the impact of inflation-cooling measures are expected to bite," Walsh said.
On overall airline costs, he said it would grow by 5.3 per cent to US$776 billion with cost pressures coming from labour, skill and capacity shortages as well as infrastructure costs.
The total fuel spend in 2023 is expected to be US$229 billion, which makes up 30 per cent of airline expenses.
IATA forecasted that jet kerosene would average US$111.9 per barrel, down from US$138.8 a barrel in 2022, while Brent crude would likely be at US$92.3 a barrel.
Two of the biggest expenses for an airline are fuel and salary.
Walsh said risks in the airline industry such as interest rate hikes, which could see some economies falling into recession, as well as the prolongation of China's lockdown remains.
He added that proposals for increased infrastructure charges or taxes to support sustainability efforts could also affect the industry's overall profitability in 2023.
The job of airline managements will remain challenging, he said, as careful watch on economic uncertainties will be critical.
"Airline profitability is razor thin. Each passenger carried is expected to contribute on average just US$1.11 to the industry's net profit. In most parts of the world that's far less than what is needed to buy a cup of coffee," Walsh said.
He added that the good news is that airlines have built flexibility into their business models so they could handle the economic accelerations and decelerations impacting demand.
Meanwhile, the global airline sector is expected to see a lower net loss of US$6.9 billion in 2022 from US$9.7 billion projected by IATA in June this year.
The decrease in net loss is expected by strengthened passenger yields by up to 8.4 per cent and US$727 billion in overall revenues.
Asia Pacific airlines are projected to record a loss of US$10 billion this year while in 2023 the loss would narrow to US$6.6 billion.
The region's passenger demand growth of 59.8 per cent are expected to outpace capacity growth of 47.8 per cent in 2023.
"Asia Pacific is critically held back by the impact of China's zero Covid policies on travel and the region's losses are skewed by the performance of China's airlines who face the full impact of this policy in both domestic and international markets," Walsh said.
He added that taking a conservative view of progressing easing of restrictions in China over the second half of 2023, IATA expects strong pent-up passenger demand and a significant boost from profitable air cargo markets.