African airlines are predicted to report a combined loss of $636 million in 2022, which is predicted to be another tough year for the continent.
Although the trend of losses is not unique to Africa, airlines will experience additional losses of $213 million in 2023, the first year that worldwide air travel is anticipated to generate a profit since the COVID-19 epidemic.
In a fresh assessment released yesterday, the International Air Transport Association (IATA) revised its forecast for 2022’s global airline net losses from $9.7 billion to $6.9 billion. This is much better than the losses that were reported in 2021 and 2020, which were $42 billion and $137.7 billion, respectively.
Airlines are predicted to generate a meager $4.7 billion net profit in 2023, or a net profit margin of 0.6%. It will be the industry’s first profit since net earnings of $26.4 billion were recorded in 2019. (3.1 per cent net profit margin).
In 2023, African carriers anticipate that a growth in passenger demand of 27.4% will surpass an increase in capacity of 21.9%. The region is predicted to meet 84.3% of pre-crisis demand levels throughout the course of the year with 83.9 % of pre-crisis capacity.
Macroeconomic headwinds have made numerous economies more vulnerable and complicated connectivity, and Africa is particularly exposed to them.
Willie Walsh, the director general of IATA, claimed that the COVID-19 situation has typified how resilient airlines are.
“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 $4.7 billion profit on industry revenues of $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 decarbonises.
“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,” Walsh said.
Prospects are expected to be better in 2022 thanks in large part to higher yields and solid cost control in the face of rising fuel prices.
Passenger yields are forecast to increase by 8.4%. (up from the 5.6 per cent anticipated in June). Passenger revenue is anticipated to increase to $438 billion (from $239 billion in 2021) thanks to this strength.
With estimated revenues of $201.4 billion, air cargo revenues were crucial in reducing losses. Compared to the June prediction, that is an improvement. It is also roughly constant from 2021 and more than quadruple the $100.8 billion earned in 2019.
In comparison to 2021, overall revenues are predicted to increase by 43.6%, reaching an estimated $727 billion.
Cost-wise, jet kerosene prices are projected to average $138.8 per barrel for the entire year, a significant increase from the $125.5 per barrel anticipated in June. That reflects rising oil costs made worse by a jet crack spread that is significantly greater than historical averages. This increased the industry’s fuel bill to $222 billion (much more than the $192 billion predicted in June), despite lower demand resulting to lower consumption.
“That airlines were able to cut their losses in 2022, in the face of rising costs, labor 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 per cent of 2019 passenger volumes. But with yield improvement in both cargo and passenger businesses, airlines will reach the cusp of profitability,” said Walsh.
He further stated that the projected profits for 2023 are extremely slim. But the fact that we have reached profitability is incredibly important. Despite their complexity, the challenges that airlines will face in 2023 are within our areas of expertise.
The sector has developed a strong ability to adapt to changes in the economy, significant cost factors like fuel costs, and passenger preferences.
“We see this demonstrated in the decade of strengthening profitability following the 2008 Global Financial Crisis and ending with the pandemic. And encouragingly, there are plenty of jobs and the majority of people are confident to travel even with an uncertain economic outlook,” he said.