2023-06-06 14:08:54
Will the global aviation sector regain color after the long period of the pandemic? Airlines expect to carry 4.35 billion passengers in the world this year, a figure close to the record of 4.54 billion in 2019, according to their main international association, Iata, meeting in general assembly in Istanbul.
At the end of last April, the CEO of Airbus Guillaume Faury already explained “think [er] return to the pre-Covid production level at the end of 2024”, at the microphone of France Inter. These positive forecasts can be explained in particular by the reopening of China. But if this expected recovery relieves the actors of the sector, they consider it still fragile.
Accounts in the green
The first year of the pandemic, in 2020, the number of air passengers had collapsed by 60% to 1.8 billion, then had reached 2.3 billion in 2021, to find themselves in 2022 at 74% of the level of pre-crisis, or about 3.3 billion travelers, according to the International Civil Aviation Organization (ICAO), a UN agency.
This vigorous recovery in traffic should translate into the first profits since the start of the pandemic for carriers, which are expected to generate $9.8 billion in net profit this year – double what the Iata. The organization, which brings together some 300 airlines claiming 83% of global air passenger traffic, has also halved its loss estimates for 2022, to 3.6 billion.
Air carriers should also reach 803 billion dollars in global turnover this year, within reach of 838 billion in 2019, according to Iata, which has therefore revised its previous projections upwards. Even though industry operating margins will remain very low this year, at 1.2%, the improvement would be dramatic from the $42 billion lost in 2021 and the sinkhole in 2020 ($137.7 billion).
Not all geographic areas will return to profit this year, however, warned Iata. North American, European and Middle Eastern carriers are expected to be largely in the green, with cumulative $11.5, $5.1 and $2 billion respectively. But companies in the Asia-Pacific region (-6.9 billion dollars), Latin America (-1.4 billion) and Africa (-500 million) will remain in deficit.
“Airline financial performance is better than expected. Stronger profitability is supported by several positive developments,” said Willie Walsh, Iata’s chief executive. “China has lifted Covid-19 restrictions ahead of schedule. Freight revenue remains above pre-pandemic, although volumes are not. And costs are starting to ease Kerosene prices, still high, contracted in the first half.”
Criticism of taxes and France
On average, airlines earn $2.25 per passenger, the Iata leader said. In this context, “many companies will find it difficult to restore their accounts and to offer sustainable returns on investment” to their shareholders, he indicated.
The CEO did not hesitate to criticize the action of the French government, whether it is the strikes of air traffic controllers which led to flight cancellations, but also the banning of flights on lines served by a train in less than 2h30.
Willie Walsh also balked at taxes affecting air travel. “We did a study on some 7 billion tickets for international flights issued since 2018,” he notes, as reported The echoes. “In total, the airlines have paid more than 380 billion dollars in taxes, representing on average 33% of the price of the ticket. If we add domestic flights, the amount of taxes rises to half a billion billion.”
Supply disruptions and risk of recession
Fuel remains one of the main costs for companies, which are expected to spend some $215 billion on it in 2023, or 28% of their costs, given an average price of kerosene of $98.5 per barrel, according to the Iata.
Iata notes that the “fragile” profitability of the sector could be affected by several factors: central banks have raised their rates to fight inflation while trying to avoid a recession, but this risk remains. “If a recession causes job losses, the outlook for the sector could turn negative,” says the organization. Similarly, “the war in Ukraine has no consequences on the profitability of most companies”, but the sector would suffer from a new geopolitical escalation, Iata said in substance.
Topic on everyone’s lips at the Istanbul rally, shortages of raw materials and parts are affecting the sector’s ability to grow, Iata also said. Due to breaks in supply chains “that aircraft manufacturers and engine manufacturers have failed to resolve”, companies are struggling to “maintain and deploy their current fleets”, criticized the organization.
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