As the pace of recovery from the pandemic quickens, the International Air Transport Association (IATA) upgraded its 2022 financial outlook, reducing the airline industry's expected losses to $9.7 billion, from $11.6 billion in its October 2021 forecast, a net loss margin of -1.2 percent.
This is a "huge improvement" from losses of $137.7 billion (-36.0 percent net margin) in 2020 and $42.1 billion (-8.3 percent net margin) in 2021, according to the IATA statement issued Monday, June 20.
Furthermore, "Industry-wide profitability in 2023 appears within reach, with North America already expected to deliver an $8.8 billion profit in 2022."
The association expects financial performance in all regions to improve in 2022 compared with 2021 (all regions improved in 2021 compared with 2020 as well).
For Asia-Pacific airlines, strict and enduring travel restrictions (notably in China), along with an uneven vaccine rollout, have seen the region lag in the recovery todate.
As the restrictions diminish, IATA projected travel demand will increase quickly.
Net losses of Asia Pacific airlines in 2022 are forecast to decline to $8.9 billion.
Demand, measured by Revenue Passenger Kilometres (RPKs), is expected to reach 73.7 percent of pre-crisis (2019) levels, and capacity 81.5 percent.
In the Middle East, this year’s re-opening of international routes and long-haul flights in particular will provide a welcome boost for many.
Region-wide, net losses are expected to narrow to $1.9 billion in 2022, from a $4.7 billion loss last year.
Demand is expected to reach 79.1 percent of pre-crisis (2019) levels, and capacity 80.5 percent.
Even with rising labor and fuel costs driven by a +40 percent increase in world oil prices, efficiency gains and improving yields are helping airlines to reduce losses.
Industry optimism and commitment to emissions reductions are evident in the expected net delivery of over 1,200 aircraft in 2022.
Strong pent-up demand, the lifting of travel restrictions in most markets, low unemployment in most countries, and expanded personal savings are fueling a resurgence in demand that will see passenger numbers reach 83 percent of pre-pandemic levels in 2022.
Despite economic challenges, cargo volumes are expected to set a record high of 68.4 million tonnes in 2022.
“Airlines are resilient. People are flying in ever greater numbers. And cargo is performing well against a backdrop of growing economic uncertainty," says Willie Walsh, IATA’s Director General.
"Profitability is on the horizon for 2023. It is a time for optimism, even if there are still challenges on costs, particularly fuel, and some lingering restrictions in a few key markets,” he maintained.
As people return to travel, the challenge for 2022 is to keep costs under control.
"The improvement in the financial outlook comes from holding costs to a 44 percent increase while revenues increased 55 percent," Walsh elaborated.
"As the industry returns to more normal levels of production and with high fuel costs likely to stay for a while, profitability will depend on continued cost control. And that encompasses the value chain."
"Our suppliers, including airports and air navigation service providers, need to be as focused on controlling costs as their customers to support the industry’s recovery,” he admonished.
Industry revenues are expected to reach $782 billion (+54.5 percent on 2021), 93.3 percent of 2019 levels.
Flights operated in 2022 are expected to total 33.8 million, which is 86.9 percent of 2019 levels (38.9 million flights).
Passenger revenues are expected to account for $498 billion of industry revenues, more than double the $239 billion generated in 2021.
Scheduled passenger numbers are expected to reach 3.8 billion, with revenue passenger kilometers (RPKs) growing 97.6
percent compared with 2021, reaching 82.4 percent of 2019 traffic.
As pent-up demand is released with the easing of travel restrictions, yields are expected to rise 5.6 percent. That follows a yield evolution of -9.1 percent in 2020 and +3.8 percent in 2021.
Cargo revenues are expected to account for $191 billion of industry revenues. That is down slightly from the $204 billion recorded in 2021, but nearly double the $100 billion achieved in 2019.
Overall, the industry is expected to carry over 68 million tonnes of cargo in 2022, which is a record high.
As the trading environment softens slightly, cargo yields are expected to fall 10.4 percent compared with 2021.
That only partially reverses the yield increases of 52.5 percent in 2020 and 24.2 percent in 2021.
Overall expenses are expected to rise to $796 billion. That is a 44 percent increase on 2021, which reflects both the costs of supporting larger operations and the cost of inflation in some key items.
At $192 billion, fuel is the industry’s largest cost item in 2022 (24 percent of overall costs, up from 19 percent in 2021).
This is based on an expected average price for Brent crude of $101.2/barrel and $125.5 for jet kerosene.
Airlines are expected to consume 321billion liters of fuel in 2022 compared with the 359 billion liters consumed in 2019.
War in Ukraine is keeping prices for Brent crude oil high. Nonetheless, fuel will account for about a quarter of costs in 2022.
A particular feature of this year’s fuel market is the high spread between crude and jet fuel prices. This jet crack spread remains well above historical norms, mostly owing to capacity constraints at refineries.
Under-investments in this area could mean that the spread remains elevated into 2023.
At the same time, high oil and fuel prices are likely to see airlines improve their fuel efficiency—both through the use of more efficient aircraft and through operational decisions.
Labor is the second highest operational cost item for airlines.
Direct employment in the sector is expected to reach 2.7 million, up 4.3 percent on 2021 as the industry rebuilds from the significant decline in activity in 2020.
However, employment is still below the 2.93 million jobs in 2019 and is expected to remain below this level for some time.
Unit labor costs are expected to be 12.2 cents/available tonne kilometer (ATK) in 2022, which is essentially back to 2019 levels when it was 12.3 cents/ATK.
The time required to recruit, train, complete security / background checks, and perform other necessary processes before staff are “job-ready” is presenting a challenge for the industry in 2022.
In some cases, employment delays may act as a constraint on an airline’s ability to meet passenger demand.
The industry’s wage bill is expected to reach $173 billion in 2022, up 7.9 percent on 2021, and disproportionate to the 4.3 percent increase in total jobs.