Middle East carriers see significant rise in passenger load factor
MUSCAT: Middle East carriers 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, according to a new report.
“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 preCOVID level,” the International Air Transport Association (IATA) said in its new report.
It announced an expected strengthening of airline industry profitability in an upgrade of its outlook for 2023.
“Resilience is the story of the day and there are many good reasons for optimism. Achieving profitability at an industry level after the depths of the COVID-19 crisis opens up much potential for airlines to reward investors, fund sustainability, and invest in efficiencies to connect the world even more effectively. That’s a big ‘to do’ list to achieve with just a 1.2% net profit margin. That’s why we call on governments to keep their focus on initiatives that will strengthen safe, sustainable, efficient, and profitable connectivity,” said Willie Walsh, IATA’s Director General.
“Priorities for 2023 include SAF production incentives to accelerate progress toward net zero carbon emissions, ensuring the integrity of CORSIA as the economic measure applied to international aviation, eliminating inefficiencies in air traffic management and applying global standards consistently,” he further added.
The improvement in industry financial performance in 2022 outpaced previous expectations. Net industry losses for 2022 are now estimated to be -$3.6 billion, strengthening from the previously estimated -$6.9 billion loss (December 2022). At the operating level, and notwithstanding the wide variation in performance, the latest data point to the industry has returned to profit in 2022 on a pre-tax basis, the IATA report said.
Highlights of the report
Airline industry net profits are expected to reach $9.8 billion in 2023 (1.2 per cent net profit margin) which is more than double the previous forecast of $4.7 billion (December 2022).
Airline industry operating profits are expected to reach $22.4 billion in 2023, much improved over the December forecast of a $3.2 billion operating profit. It is also more than double the $10.1 billion operating profit estimated for 2022. Some 4.35 billion people are expected to travel in 2023, which is closing in on the 4.54 billion who flew in 2019.
Cargo volumes are expected to be 57.8 million tonnes, which has slipped below the 61.5 million tonnes carried in 2019 with a sharp slowing of international trade volumes.
Total revenues are expected to grow 9.7 per cent year over year to $803 billion. This is the first time that industry revenues will top the $800 billion mark since 2019 ($838 billion). Expense growth is expected to be contained to an 8.1 per cent annual increase.
“Airline financial performance in 2023 is beating expectations. Stronger profitability is supported by several positive developments. China lifted COVID-19 restrictions earlier in the year than anticipated. Cargo revenues remain above pre-pandemic levels even though volumes have not. And, on the cost side, there is some relief. Jet fuel prices, although still high, have moderated over the first half of the year,” said Willie Walsh.
The return to net profitability, even with a 1.2 net profit margin, is a major achievement. First, it was achieved at a time of significant economic uncertainties. And second, it follows the deepest losses in aviation’s history ($183.3 billion of net losses for 2020-2022 (inclusive) for an average net profit margin of -11.3 per cent over that period). It should be noted that the airline industry entered the COVID-19 crisis at the end of a historic profit streak that saw an average net profit margin of 4.2 per cent for the 2015-2019 period.
“Economic uncertainties have not dampened the desire to travel, even as ticket prices absorbed elevated fuel costs. After deep COVID-19 losses, even a net profit margin of 1.2% is something to celebrate! But with airlines just making $2.25 per passenger on average, repairing damaged balance sheets and providing investors with sustainable returns on their capital will continue to be a challenge for many airlines,” Walsh further added.