Global airlines, yesterday, announced an upgrade to its outlook for the airline industry’s 2022 financial performance, with the recent spike in aviation fuel headlining the major hurdle for recovery and profitability.
The airlines, under the aegis of International Air Transport Association (IATA), said that the industry losses were expected to reduce to $9.7 billion, being an improvement from the October 2021 forecast of $11.6 billion loss.
Overall expenses are expected to rise to $796 billion. That is a 44 per cent increase on 2021, which reflects both the costs of supporting larger operations and the cost of inflation in some key items like fuel that is the major headache for local airlines in Nigeria.
IATA estimated that 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 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.
But industry-wide profitability in 2023 appears within reach with North America already expected to deliver an $8.8 billion profit in 2022.
Efficiency gains and improving yields are helping airlines to reduce losses even with rising labour and fuel costs (the latter driven by a +40 per cent increase in the world oil price and a widening crack spread this year).
ATA’s Director General, Willie Walsh, noted that airlines were 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,” he said.
Walsh added that the reduction in losses was the result of hard work to keep costs under control as the industry ramps up.
“The improvement in the financial outlook comes from holding costs to a 44 per cent increase while revenues increased 55 per cent. 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,” Walsh said.
Financial performance in all regions is expected to improve in 2022 compared with 2021 (all regions improved in 2021 compared with 2020 as well).
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.
North America is expected to continue to be the strongest performing region and the only region to return to profitability in 2022. Supported by the large US domestic market and the re-opening of international markets, including the North Atlantic, net profit is forecast to be $8.8 billion in 2022. Demand (RPKs) is expected to reach 95.0 per cent of pre-crisis (2019) levels, and capacity 99.5 per cent.
In Europe, the Russia-Ukraine war will continue to disrupt travel patterns within Europe and between Europe and Asia-Pacific. However, the war is not expected to derail the travel recovery, with the region edging closer to profitability in 2022, with a net loss of $3.9 billion forecast. Demand (RPKs) is expected to reach 82.7 per cent of pre-crisis (2019) levels, and capacity 90.0 per cent.
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 to date. As the restrictions diminish, travel demand is expected to increase quickly. Net losses in 2022 are forecast to decline to $8.9 billion. Demand (RPKs) is expected to reach 73.7 per cent of pre-crisis (2019) levels, and capacity 81.5 per cent.