Airline sector profitability to improve in 2022

Earlier this year, Emirates Group records annual loss of $1 billion, a significant improvement from last year with dnata returning to profitability

Net losses for the Middle Eastern airline industry are expected to narrow to $1.9 billion in 2022, from a $4.7 billion loss last year, said the International Air Transport Association (Iata) in an upgrade to its outlook for the industry’s 2022 financial performance as the pace of recovery from the Covid-19 crisis quickens.

This year’s re-opening of international routes and long-haul flights in particular will provide a welcome boost for many regional airlines, the report said, adding that demand (revenue passenger kilometres - RPKs) is expected to reach 79.1 per cent of pre-crisis (2019) levels, and capacity 80.5 per cent, it added.

In Africa, lower vaccination rates have dampened the region’s air travel recovery to date. However, some catching up is likely this year, which will contribute to an improved financial performance. Net losses are forecast to be $0.7 billion in 2022. Demand (RPKs) is expected to reach 72.0 per cent of pre-crisis (2019) levels, and capacity 75.2 per cent.

Globally, industry losses are expected to reduce to $9.7 billion (improved from the October 2021 forecast for an $11.6 billion loss) for a net loss margin of 1.2 per cent. That is a huge improvement from losses of $137.7 billion (-36.0 per cent net margin) in 2020 and $42.1 billion (8.3 per cent net margin) in 2021.

“Airlines are resilient. People are flying in ever greater numbers. And cargo is performing well against a backdrop of growing economic uncertainty. Losses will be cut to $9.7 billion this year and 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,” said Willie Walsh, Iata’s Director General.

At $192 billion, fuel is the industry’s largest cost item in 2022 (24 per cent of overall costs, up from 19 per cent 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 321 billion litres of fuel in 2022 compared with the 359 billion litres consumed in 2019.

Labour is the second highest operational cost item for airlines. Direct employment in the sector is expected to reach 2.7 million, up 4.3 per cent on 2021 as the industry rebuilds from the significant decline in activity in 2020. Employment is still, however, somewhat below the 2.93 million jobs in 2019 and is expected to remain below this level for some time. Unit labour costs are expected to be 12.2 cents/available tonne kilometre (ATK) in 2022, which is essentially back to 2019 levels when it was 12.3 cents/ATK.

“Governments must have learned their lessons from the Covid-19 crisis. Border closures create economic pain but deliver little in terms of controlling the spread of the virus. With high levels of population immunity, advanced treatment methods, and surveillance procedures, the risks of Covid-19 can be managed. At present, there are no circumstances where the human and economic costs of further Covid-19 border closures could be justified,” said Walsh.