The airline industry will return to profit next year as pent-up demand for travel sustains bookings even as the global economy tightens, the International Air Transport Association trade group predicted.
Losses this year are likely to total $9.7 billion as air travel begins its recovery from the coronavirus crisis, IATA said Monday in an update at its annual meeting in Doha, an improvement on the $11.6 billion deficit predicted at the previous gathering last October.
“Industry-wide profit should be on the horizon in 2023,” IATA Director General Willie Walsh told the gathering of airline chiefs. “We are rebounding. By next year, most markets should see traffic reach or exceed pre-pandemic levels.”
While most carriers are enjoying bumper sales as customers flood back following the lifting of Covid curbs, taking leisure trips and catching up with friends and family, there are doubts about how long the surge will continue as high fuel prices push airlines to hike fares and inflationary pressures weigh on household spending.
Walsh said that while “there is no way to sugar coat the bitter economic and political realities,” at the same time “the desire to travel and the necessity of moving goods are both solid.”
The return to profit is already underway in North America, with airlines there now expected to post a collective net income of $8.8 billion this year. While all other regions will still make a loss, passenger numbers worldwide are forecast to reach 83% of pre-pandemic levels.
‘Leaner, tougher’
The industry has emerged “leaner, tougher, and nimble,” having defied predictions for widespread bankruptcies and failures, Walsh said. The situation was helped by the industry having enjoyed its best-ever run of profits prior to the pandemic, though fixing balance sheets carrying debts of $650 billion remains a “monumental challenge,” he said.
Walsh, previously chief executive officer at British Airways parent IAG SA, told Bloomberg Television on Sunday that past experience suggests the impact of an economic slowdown won’t be so great, pointing to the global financial collapse of 2008, after which passenger numbers held steady in 2009 and showed strong growth in 2010.
He also said he doesn’t expect staffing shortages that have disrupted flights to be a major issue as travel peaks in coming months, with carriers taking steps to rein in capacity where necessary. Passengers “can book with confidence,” he said, knowing that problems are “isolated and it will be addressed.”
Speaking at a press briefing Monday, Walsh said aviation is suffering the same employment issues as other sectors but that the impact has been more acute because people can’t generally work from home. There’ll be a disconnect between supply and demand through the end of this year and into the first quarter, he said.
Qatar Airways Chief Executive Officer Akbar Al-Baker, who is hosting the IATA gathering, said in a briefing that his airline needs to hire 7,000 staff this year in all functions, though doesn’t see any obvious labor shortages.
Emirates President Tim Clark told Bloomberg TV that while some airlines were ready for the rebound, others had taken a more pessimistic view and hadn’t expected demand to recover fully until 2025, leaving them lacking in capacity and resources.
Clark concurred that a pent-up desire to travel will help sustain bookings through a slowdown and said Emirates remains on course for a return to profitability by the end of its current fiscal year. Having delayed his retirement when the pandemic hit, he said he’ll stay on until a profit has been delivered and the balance sheet repaired.
Fare Impact
Customers can expect to see higher fares as a consequence of surging fuel prices, especially outside the U.S., where a lack of hedging led to an immediate hike, Walsh cautioned, while suggesting that the impact may be “marginal” with no massive hit to demand. On the positive side, higher jet fuel prices could encourage the switch to sustainable aviation fuel, with the price differential between the two now much narrower, he said.
Walsh said in the interview that he sees the war in Ukraine remaining a long-term challenge for airlines, though the impact on most carriers has been “pretty limited,” apart from a handful such as Finnair Oyj, whose eastbound network has been largely wiped out by the conflict.
IATA also said that 2021’s loss amounted to $42 billion, better than the $52 billion shortfall previously envisioned and far lower than the record $138 billion loss suffered by the industry in 2020, when Covid-19 grounded flights worldwide.
