Middle East airline profitability outlook strengthens

Net profit of airlines in the Middle East are expected to hit $2 billion this year, the International Air Transport Association (IATA) predicted on Monday.

Estimated net profit for the region’s carriers was around $1.4 billion in 2022, the global civil aviation body said in a report. Average revenue per kilometre is expected to rise by 20.8 per cent compared to last year.

Available seat kilometres is expected to rise 15.9 per cent from last year, the IATA report said.

The region’s 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, IATA said. 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% of its pre-Covid levels, it noted.

Globally, 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.

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, IATA’s director-general.

The return to net profitability, even with a 1.2 per cent net profit margin, is a major achievement, IATA noted. 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.

Cargo revenues are expected to be $142.3 billion. While that is down sharply from $210 billion in 2021 and $207 billion in 2022, it is well above the $100 billion earned in 2019. Yields will be negatively impacted by two factors: (1) the ramping-up of passenger capacity which automatically increases available belly capacity for cargo and (2) the potential negative effects on international trade of economic cooling measures introduced to fight inflation. Yields are expected to correct with a 28.6 per cent decline this year, but still remain high by all historical comparisons. Note that yield increases of 54.7 per cent were recorded in 2020, 25.9 per cent in 2021 and 7.4 per cent in 2022.