Seatbelts on, concerns off: Travel demand may lift airlines' profits to $10 billion

Global airlines are seen reporting profits of around $9.8 billion from $4.7 billion in 2023 cheered by strong travel demand as the sector recovers from the COVID-19 pandemic, as per IATA data.

“The pandemic years are behind us and borders are open as normal,” Director General Willie Walsh told the annual meeting of the International Air Transport Association (IATA).

“Taking everything into account we believe this will be a good year for aviation,” Walsh said. Airlines will fly 4.35 billion passengers this year, close to the 2019 record, the lobby body said.
The association added that its 2022 losses were half as bad as previously estimated at $3.6 billion.

“Airline financial performance in 2023 is beating expectations,” Walsh said. “Stronger profitability is supported by several positive developments. China lifted Covid-19 restrictions earlier in the year than anticipated,” Walsh added.

The pandemic devastated the airline industry, which lost $137 billion when countries imposed lockdowns and closed borders in 2020.The sector lost another $42 billion in 2021 and was still in the red last year as China, a major market, continued to enforce Covid restrictions that were finally lifted in December.The toplines of aviation companies are also inching closer to pre-pandemic levels, climbing to an expected $803 billion in 2023 versus $838 billion in 2019.

Global airlines have in recent months reported strong results as they prepare for a busy summer season, with travel demand showing no sign of flagging despite peaking inflation. Pressure from oil prices has also eased this year.

However, worries on margins continue to remain a concern for companies. Profit margins, clocking in at 1.2%, were still too thin to ensure the industry’s long-term financial robustness, Walsh said.

He said that demand is being lifted by high employment levels even with a weaker macroeconomic outlook.

“A lot of people not just have to travel, but want to travel. And they will continue to do so through this year,” Walsh told Reuters in an interview separately. “That tends to give consumers confidence that they can spend money, that they can incur some debt to continue to enjoy what it is they’re doing.”

Worries not over yet

Walsh told delegates from some 300 airlines that ongoing challenges, such as supply chain issues and rising airport charges, were dragging down the industry’s recovery.

“OEM suppliers have been far too slow in dealing with supply chain blockages that are both raising costs and limiting our ability to deploy aircraft,” he said.

“Airlines are beyond frustrated. A solution must be found.”

The body expects expenses to grow to $781 billion, a 8.1 per cent increase annually and fall of 1.8 per cent in comparison to 2019.

Jet fuel costs are expected to average $98.5/barrel in 2023 for a total fuel bill of $215 billion. That is cheaper than the $111.9 / barrel previously expected (December 2022) and the average cost of $135.6 experienced in 2022, IATA said.

IATA expects fuel costs to account for 28% of the average cost structure, which is still above the 24 per cent of 2019.

“High crude oil prices were exaggerated for airlines as the crack spread averaged more than 34% for 2022—significantly above the long-run average. As a result, fuel was responsible for almost 30% of total expenses,” IATA said in a statement to the press.

“In recent months, the crack spread has narrowed, and the full year average crack spread is expected to fall to around 23 per cent, which is more closely aligned with the historical average rate,” it added.

Since the turn of 2023, the aviation industry in India has seen a mixed bag of developments. It started with the record deals Tata Group‘s Air India signed with Boeing and Airbus, which was in the works for an elongated period of time.

As per multiple media reports, domestic carrier IndiGo Airlines is also in talks with Airbus is closing towards a potentially record deal to sell 500 narrow-body A320-family jets. Airbus and Boeing are also still competing in separate talks to sell 25 A330neo or Boeing 787 wide-body jets to the same airline.

Akasa Air was launched late 2022 and Fly91 is set to take to the skies soon.

However, the Wadia Group-backed budget carrier GoFirst went bankrupt for a host of reasons, engine gaffes being one of them. This development sent alarm bells ringing about the delicate nature of the aviation industry. Go First approached a Delaware court to enforce an arbitration order in Singapore against Pratt & Whitney, which it blames for its financial troubles by arguing the U.S. firm failed to supply engines on time.

Global airlines have now asked IATA to intervene with planemakers to push for solutions to industrial delays hampering their recovery, Walsh said. He was speaking at a news conference after telling the group’s annual meeting that aircraft manufacturers had been too slow in addressing supply chain blockages. Any talks with planemakers would not address contracts of individual airlines, he said.

In recent months here has also been a rise in the reports of unruly passengers during air travel. One unruly passenger incident was reported for every 568 flights last year compared to one such incident per 835 flights in 2021, according to IATA.

Airline executives from the some 300 airlines represented by the IATA descended on Istanbul over the weekend for the start of the trade organization’s 79th annual general meeting. More than 1,520 participants are taking part in the event, the first being held since all Covid restrictions were lifted.

Article source: https://airlines.einnews.com/article/637700115/azLbm3S1GX1AaCrJ?ref=rss&ecode=vaZAu9rk30b8KC5H

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