African airlines are expected to post a loss of US$638 million (over N$11 billion) in 2022, narrowing to a loss of US$213 million in 2023. This is according to the latest figures released by the International Air Transport Association (IATA).
The most recent IATA analysis shows that Africa’s passenger demand growth of 27.4% is expected to outpace capacity growth of 21.9%. Over the year, the continent is expected to serve 86.3% of pre-crisis demand levels with 83.9% of pre-crisis capacity.
According to IATA, Africa is particularly exposed to macro-economic headwinds, which have increased the vulnerability of several economies and rendered connectivity more complex.
On the global front, IATA expects a return to profitability for the world’s airline industry in 2023 as airlines continue to cut losses stemming from the effects of the Covid-19 pandemic to their business in 2022. In 2023, airlines are expected to post a small net profit of US$4.7 billion—a 0.6% net profit margin, which would be a first profit since 2019 when industry net profits were US$26.4 billion (3.1% net profit margin).
In 2022, airline net losses are expected to be US$6.9 billion (an improvement on the US$9.7 billion loss for 2022 in IATA’s June outlook). This is significantly better than losses of US$42.0 billion and US$137.7 billion that were realised in 2021 and 2020 respectively.
“Resilience has been the hallmark for airlines in the Covid-19 crisis. As we look to 2023, the financial recovery will take shape with a first industry profit since 2019. That is a great achievement considering the scale of the financial and economic damage caused by government imposed pandemic restrictions.
But a US$4.7 billion profit on industry revenues of US$779 billion also illustrates that there is much more ground to cover to put the global industry on a solid financial footing.
Many airlines are sufficiently profitable to attract the capital needed to drive the industry forward as it decarbonizes. But many others are struggling for a variety of reasons. These include onerous regulation, high costs, inconsistent government policies, inefficient infrastructure and a value chain where the rewards of connecting the world are not equitably distributed,” said Willie Walsh, IATA’s director general.
Meanwhile, IATA shows that improved prospects for 2022 stem largely from strengthened yields and strong cost control in the face of rising fuel prices.
Passenger yields are expected to grow by 8.4% (up from the 5.6% anticipated in June). Propelled by that strength, passenger revenues are expected to grow to US$438 billion (up from US$239 billion in 2021).
Air cargo revenues played a key role in cutting losses with revenues expected to reach US$201.4 billion. That is an improvement compared with the June forecast, largely unchanged from 2021, and more than double the US$100.8 billion earned in 2019.
Overall revenues are expected to grow by 43.6% compared to 2021, reaching an estimated US$727 billion.
Most other factors evolved in a negative manner following a downgrade of GDP growth expectations (from 3.4% in June to 2.9%), and delays in removing COVID-19 restrictions in several markets, particularly China.
IATA’s June forecast anticipated that passenger traffic would reach 82.4% of pre-crisis levels in 2022, but it now appears that the industry demand recovery will reach 70.6% of pre-crisis levels. Cargo, on the other hand, was anticipated to exceed 2019 levels by 11.7%, but that is now more likely be moderated to 98.4% of 2019 levels.
“That airlines were able to cut their losses in 2022, in the face of rising costs, labour shortages, strikes, operational disruptions in many key hubs and growing economic uncertainty speaks volumes about peoples’ desire and need for connectivity. With some key markets like China retaining restrictions longer than anticipated, passenger numbers fell somewhat short of expectation. We’ll end the year at about 70% of 2019 passenger volumes. But with yield improvement in both cargo and passenger businesses, airlines will reach the cusp of profitability,” said Walsh.
Moreover, in 2023 the airline industry is expected to tip into profitability. Airlines are anticipated to earn a global net profit of US$4.7 billion on revenues of US$779 billion (0.6% net margin). This expected improvement comes despite growing economic uncertainties as global GDP growth slows to 1.3% (from 2.9% in 2022).
“Despite the economic uncertainties, there are plenty of reasons to be optimistic about 2023. Lower oil price inflation and continuing pent-up demand should help to keep costs in check as the strong growth trend continues. At the same time, with such thin margins, even an insignificant shift in any one of these variables has the potential to shift the balance into negative territory. Vigilance and flexibility will be key,” said Walsh.