Airline industry's profit forecast doubles to $9.8bn on high demand and low fuel prices

China's earlier-than-expected reopening and robust cargo revenue in the first half contributed to improved forecast, Iata says

Willie Walsh, director general of the International Air Transport Association, at the annual general meeting in Istanbul, Turkey. Reuters

The global airline industry's annual profit forecast for 2023 more than doubled on higher travel demand and lower jet fuel prices in the first half of the year, although economic and geopolitical risks continue to loom over the outlook.

The industry is expected to collectively earn $9.8 billion in net income this year, up from a December forecast of $4.7 billion, the International Air Transport Association said on Monday.

This is in marked contrast with net losses of $183.3 billion – the deepest in aviation history – from 2020 to 2022.

The net profit margin for 2023 stands at 1.2 per cent, compared with 3.1 per cent in 2019.

China's earlier-than-expected lifting of Covid-19 restrictions, as well as cargo revenue that remained above pre-pandemic levels and jet fuel prices that moderated over the first half of 2023, have prompted Iata to raise its annual profit forecast.

Annual total revenue is set to grow by 9.7 per cent annually to $803 billion in 2023, outpacing the 8.1 per cent growth in expenses of $781 billion and strengthening profitability.

This tops the $800-billion mark for the first time since 2019 when airlines recorded $838 billion in revenue.

About 4.35 billion people are expected to travel in 2023, close to the 4.54 billion that flew in 2019 before the onset of the pandemic.

“The pandemic years are behind us and borders are open as normal. Despite economic uncertainties, people are flying to reconnect, explore and do business,” said Iata director general Willie Walsh at the opening of the aviation body's annual general meeting in Istanbul on Monday.

“Airports are busier, hotel occupancy is rising, local economies are thriving and the airline industry has moved into profitability.”

Passenger revenue is expected to rise by 27 per cent annually to $546 billion this year as Covid-19 restrictions have now been lifted in all major markets.

In terms of airline costs, jet fuel is expected to average $98.50 a barrel in 2023, amounting to a total bill of $215 billion.

That is cheaper than the $111.90 a barrel previously expected in December 2022 and below the average cost of $135.60 recorded in 2022, Iata said.

Fuel costs will account for 28 per cent of airline's average costs, which is still above the 24 per cent recorded in 2019.

Airlines have managed to sufficiently control non-fuel costs despite inflationary pressures, Iata said.

Despite the stronger profitability outlook, Mr Walsh warned of the risks ahead.

“Margins, however are wafer-thin … airlines will make on average $2.25 per passenger, so the value retained by airlines for the average plane trip booked won't even buy you a subway ticket in New York,” he said.

“Clearly that level of profitability is not sustainable, but considering we lost $76 per passenger in 2020, the velocity of recovery is strong.”

Risks to the industry's profit outlook include measures to fight inflation, labour shortages in some areas, continuing supply chain problems and rising airport fees, Mr Walsh said at the meeting of more than 300 airline members.

Mr Walsh said original equipment manufacturers had been “far too slow” in dealing with supply chain blockages that have driven up costs and limited airlines' ability to secure aircraft.

“Airlines are beyond frustrated and solutions must be found,” he said.

“Oil companies did very well on our tab as the crack spread for jet fuel was at historic highs for most of 2022 until April of this year. And there are grievous examples of some airports shifting their costs of their inefficiency to us.”

In terms of air cargo, volumes dropped below 2019 levels although revenue remains above the industry's pre-pandemic performance.

Cargo volume is expected to hit 57.8 million tonnes in 2023, slipping below the 61.5 million tonnes carried in 2019, due to a “sharp” slowdown international trade volumes, according to Iata.

However, cargo revenue has been forecast at $142.3 billion, a sharp decline from $210 billion in 2021 and $207 billion in 2022 but well above the $100 billion earned in 2019.

Cargo yields will be hit, firstly, by the ramp-up of passenger capacity, which automatically increases available freight capacity, and secondly, by the potential negative effects on international trade inflation-fighting measures.

Yields are expected to “correct” with a 28.6 per cent decline this year – compared with pandemic-triggered yield increases of 54.7 per cent in 2020, 25.9 per cent in 2021 and 7.4 per cent in 2022 – but still remain high by historical comparisons.

While the global aviation industry is expected to return to profitability in 2023, financial performance across regions has varied.

Middle East carriers are expected to earn $2 billion this year, compared with an estimated $1.4 billion in 2022, Iata data shows.

“The region’s return to profitability in 2022 was supported by a significant increase in the passenger load factor of almost 25 percentage points, outstripping the performance of the other regions,” Iata said.

“At the same time, Middle East carriers have been swiftly rebuilding their international networks and in March 2023, the region’s international connectivity had returned to 98 per cent of its pre-Covid level.”

Emirates airline will host the 80th annual general meeting of Iata in Dubai next year on June 2 to June 4.