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% of pre-crisis (2019) levels, and capacity 80.5%, 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% of pre-crisis (2019) levels, and capacity 75.2%.

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%. That is a huge improvement from losses of $137.7 billion (-36.0% net margin) in 2020 and $42.1 billion (8.3% 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.

Outlook Drivers
Revenues are rising as Covid-19 restrictions ease and people return to travel. The challenge for 2022 is to keep costs under control.

“The reduction in losses is 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% increase while revenues increased 55%. 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,” said Walsh.

Revenues
Industry revenues are expected to reach $782 billion (+54.5% on 2021), 93.3% of 2019 levels. Flights operated in 2022 are expected to total 33.8 million, which is 86.9% 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 RPKs growing 97.6% compared with 2021, reaching 82.4% of 2019 traffic. As pent-up demand is released with the easing of travel restrictions, yields are expected to rise 5.6%. That follows a yield evolution of -9.1% in 2020 and +3.8% 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% compared with 2021. That only partially reverses the yield increases of 52.5% in 2020 and 24.2% in 2021.

Expenses
Overall expenses are expected to rise to $796 billion. That is a 44% increase on 2021, which reflects both the costs of supporting larger operations and the cost of inflation in some key items.

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

Labour: 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% 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.

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.

In countries where the economic recovery from the pandemic has been swift and the unemployment rate is low, tight labour markets and skill shortages are likely to contribute to upward pressure on wages. The industry’s wage bill is expected to reach $173 billion in 2022, up 7.9% on 2021, and disproportionate to the 4.3% increase in total jobs.

Macro-Economic Factors
The global macroeconomic backdrop is critical for the industry outlook. The forecast incorporates an assumption for solid global GDP growth of 3.4% in 2022, down from the strong 5.8% rebound last year. Inflation has risen and is expected to remain elevated throughout 2022, waning over the course of 2023. And, while nominal interest rates are rising, real interest rates are expected to remain low or negative for a sustained period.  

Covid-19
The underlying demand for travel is strong. But government responses to Covid-19 ignored World Health Organization advice that border closures are not an effective means of controlling the spread of a virus. The outlook assumes that strong and growing population immunity to Covid-19 means there will not be a repeat of these policy mistakes. There is, however, downside risk should governments return to knee-jerk border-closing responses to future outbreaks.

“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. – TradeArabia News Service