Profitability Coming For World’s Airlines In 2023

Willie Walsh, director general of the International Air Transport Association (IATA), a trade association representing the global airline industry, is optimistic about the world of aviation going into 2023. The recovery has been strong and gaining momentum throughout the year, he says. Profits are still below 2019, but moving in the right direction with many airlines expected to achieve profitability in 2023.

Passenger demand is expected to reach 85.5% of 2019 levels next year with passenger numbers topping 4 billion for the first time since the pandemic began.

Walsh, who also served as the founding CEO of International Airlines Group (IAG/British Airways, Iberia, Vueling and Aer Lingus among others), shared his remarks at a recent event at IATA’s headquarters in Geneva. The highly respected airline leader discussed his outlook for the new year and how airline executives view the remaining headwinds facing the industry.

Is Covid still an obstacle for the aviation industry?

It is clearly endemic now, and with the exception of China, most parts of the world have removed the restrictions that were in place. The restrictions had very little effect on reducing the transmission of the disease on a global scale. It maybe slowed down the transmission perhaps for just a few days, but it had a drastic economic impact on the industry. The industry has to learn what worked and what didn’t work so that we don’t make those same mistakes in the future. Decisions should be based on real data rather than emotion, and we have to work with governments so we don’t make those mistakes in the future.

Are the summer problems we saw at airports resolved?

London Heathrow and Amsterdam Schiphol were two airports with major issues that went on far too long. The service level performance at airports like Heathrow was appalling and was the fault of airports not being fully prepared. IATA believes that the burden should not rest with airlines to resolve staffing levels at many airports. Most other airports functioned pretty well. While most of these issues appear to be behind us, it remains to be seen how skill and capacity shortages for staff and rising aviation fuel costs will affect airports in the year to come.

How does the war in Ukraine impact the industry?

The impact has been somewhat limited when it comes to the passenger experience, but the volatility of fuel prices has been quite drastic for airlines. There has been a 54% increase in the fuel price in the past year, and this has added significantly to the airline’s cost base. The closure of Russian airspace has caused a problem for some airlines like Finnair (whose long-haul flights often overfly Russian airspace), but not as much for other carriers that don’t operate flights in the area. As we rebuild in 2023, we will see an increasing impact due to the closure of Russian airspace.

How do you see the progress of achieving “net zero” for the aviation industry?

Governments have aligned with the industry on the goal to create net-zero emissions by 2050. There is more work to do, but the positive is that we are putting the right policy frameworks in place to enable the industry to make necessary changes. Widespread availability of sustainable aviation fuels is the primary first step to reach that goal, and in 2023, we need to see further evidence in the possibility to develop more sustainable aviation fuel. It is an expensive goal, and it will increase the cost base for airlines. Despite seeing an increasing cost as part of this transition, the industry and IATA are absolutely determined to get there.

How is the global recession affecting the industry?

Global GDP growth has slowed, and it is being perceived as recession. Some countries are experiencing more severe recessions, but the global recession is something that we believe is possible to avoid. IATA data shows that we will reach 2019 traffic levels by 2024 leading with the United States followed by the Asia-Pacific region.

Airline net losses are expected to be around $6.9 billion this year, but next year, airlines are expected to post a small net profit of $4.7 billion in 2023. This will be the first profit since 2019 when industry net profits were $26.4 billion. North American airlines are among the first to achieve profits reaching $9.9 billion this year and a projection of $11.4 billion next year. European and Middle Eastern carriers will soon follow with profits next year. Asia-Pacific, Latin American and African airlines will need until 2024 before they reach profitability.

Still, recovery is not at the same pace for different regions of the world. Among the network carriers, they under-performed the low-cost sector pre-pandemic, but their average economic returns exceeded those of low-cost airlines during the pandemic. The gap between the two, however has narrowed as the recovery progressed. Airlines that operated cargo flights had a profitable financial performance with almost 10% return on investment. These will continue to prove a key component of revenue for airlines in 2023.

What worries you most about the year ahead?

The outlook is more positive than it has ever been in the past two years. The primary issue is what happens with China’s Covid protocols and when the country will fully reopen. Most people have an expectation that they will reopen next year.

In 2023, airlines may have to be a little more cautious than in years past. One issue of concern among airline executives shared with IATA is the disruption to supply chains and the degree to which spare parts may be available. It’s something to keep an eye on because it would be a shame to have that hinder airlines’ ability to recover.

Many airlines will become sufficiently profitable in the new year. Others are struggling for a variety of reasons. These include onerous regulations from governments, high labor and operational costs, inconsistent government policies, inefficient infrastructure at airports and a value chain where the rewards of connecting the world are not equitably distributed. This is the primary role of IATA to help carriers address these challenges to reach profitability as soon as possible.