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Middle East airline profitability outlook strengthens

IATA sees region’s carriers’ net profit hit $2 billion this year

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.

“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 per cent 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,” said Walsh.

Industry revenues are expected to reach $803 billion in 2023 . An inventory of 34.4 million flights is expected to be available in 2023. Passenger revenues are expected to reach $546 billion ( a gain of 27 per cent on 2022, but still 10 per cent lower than 2019 figures). With Covid-19 restrictions now removed in all major markets, the industry is expected to reach 87.8 per cent of 2019 levels of revenue passenger kilometers (RPKs) for the year with strengthening passenger traffic as the year progresses. The high demand for travel in many markets is keeping yields strong with a modest 1.1 per cent decline expected in 2023 compared to 2022 levels (following increases of 9.8 per cent in 2022 and 3.7 per cent in 2021).

Efficiency levels are high with an expected average passenger load factor of 80.9 per cent for 2023. That is very near the 2019 record performance of 82.6 per cent.

IATA’s May 2023 passenger polling data supports the optimistic outlook, with 41 per cent of travelers indicating they expect to travel more in the next 12 months than in the previous year and 49 per cent expect to undertake the same level of travel. Moreover, 77 per cent of respondents indicated that they were already traveling as much or more than they did pre-pandemic.

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.

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.