Yocova is delighted to collaborate with FINN, our Insights Partner. Together we share the latest news and comprehensive coverage of the aviation sector. With this article, we’re delighted to reveal FINN’s insights on predicted developments across aviation in 2023.
Will 2023 herald a clean break from the challenging Covid years? Perhaps, but the next 12 months will not be entirely smooth sailing, finds Tom Batchelor.
Bankruptcies, bailouts and travel restrictions that brought the aviation industry to its knees: the last two years have not been easy for airlines, OEMs and the wider aerospace ecosystem.
But could 2023 herald a turning point?
The International Air Transport Association (IATA), the trade association for the world’s airlines, certainly thinks so.
The organisation expects a return to profitability for the global airline industry over the next 12 months.
In 2023, IATA says airlines are expected to tip into profitability, with a forecast net profit of $4.7 billion, the first since 2019 when industry net profits were $26.4 billion.
Recovery in passenger demand
Driving this is a robust recovery in demand, with passengers taking advantage of the return of their freedom to travel. A recent IATA poll of travellers in 11 global markets revealed that nearly 70 per cent are travelling as much or more than they did prior to the pandemic.
And 57 per cent have no intention to curb their travel habits, despite a looming recession and spiralling inflation.
Willie Walsh, the outspoken former CEO of International Airlines Group, Aer Lingus and British Airways, who now serves as IATA’s director general, uses the word “resilience” to sum up the industry’s response to the Covid crisis.
“As we look to 2023, the financial recovery will take shape with a first industry profit since 2019,” he said.
“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.”
Adjusting to fluctuations
Walsh added: “The industry has built a great capability to adjust to fluctuations in the economy, major cost items like fuel prices, and passenger preference.
“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.”
Indeed, any recovery will be felt differently depending on where you are in the world. In Asia, for example, where Covid restrictions have lasted much longer (China is only now relaxing its rules), the after-effects of the pandemic will be felt by the industry for a while yet.
Headwinds
Airline balance sheets may be in a healthier state by the end of 2023 (though Walsh described the expected profits for 2023 as “razor thin”), but that does not mean passenger demand will have fully recovered.
This metric is expected to reach just 85.5 per cent of 2019 levels over the course of 2023, largely suppressed by uncertainties in the large Chinese market.
At the same time, cargo markets are expected to come under increased pressure thanks to global economic uncertainty, while increased belly capacity on passenger aircraft will further impact yields.
Add an unstable geopolitical environment (not least the war in Ukraine), volatile fuel prices and a cost of living crisis that threatens to dent consumer confidence, and 2023 may still present the aviation industry with a few nasty surprises.
Author: Tom Batchelor
Published: 26th January on Yocova
First appeared on www.wearefinn.com
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