Airlines would lose $9.7 billion due to aviation fuel and other factors in 2022

Global Airlines updated its forecast for the financial performance of the airline industry in 2022 yesterday, citing the recent increase in aviation fuel as the main obstacle to recovery and profitability.

The airlines, operating under the auspices of the International Air Transport Association (IATA), predicted that industry losses would drop to $9.7 billion, a decrease from the prediction of $11.6 billion loss made in October 2021.

The total cost is anticipated to increase to $796 billion. That represents a 44% increase from 2021 and takes into account both the expense of sustaining greater operations and the cost of inflation for some essentials like fuel, which is the biggest challenge for Nigerian regional airlines.

IATA predicted that in 2022, fuel will be the industry’s greatest expense item at $192 billion (24 per cent of overall costs, up from 19 per cent in 2021). Based on predicted average prices of $101.2 per barrel for Brent crude and $125.5 for jet kerosene, this is calculated. Compared to the 359 billion liters of gasoline used by airlines in 2019, 321 billion liters are predicted to be utilized by them in 2022.

Brent crude oil prices are high due to the conflict in Ukraine. However, in 2022, fuel will still make up around 25% of prices. The wide price difference between jet fuel and oil is a distinctive aspect of this year’s fuel market. Due primarily to refinery capacity issues, this jet crack spread is still significantly higher than average.

Underinvestments in this sector could result in the spread staying high through 2023. The deployment of more fuel-efficient aircraft and operational choices will help airlines increase their fuel efficiency in response to increasing oil and fuel prices.

However, given that North America is already anticipated to generate a $8.8 billion profit in 2022, industry-wide profitability in 2023 is within reach.

Even with growing labor and fuel expenses (the latter caused by a +40% increase in the world oil price and a wider crack spread this year), efficiency improvements and improved yields are assisting airlines in reducing losses.

Willie Walsh, the director general of IATA, observed that airlines were robust. “Always more people are taking to the skies. And despite the increased economic unpredictability, freight is doing well. This year, losses will be reduced to $9.7 billion, and profitability is anticipated in 2023. Even while there are still issues with expenses, notably fuel, and some persisting restrictions in a few important areas, it is still a moment for hope, he said.

Walsh continued by saying that the decline in losses was due to the effort made to keep expenses in check as the business picked up speed.

“Holding costs to a 44 percent increase while revenues climbed by 55 percent, the financial outlook has improved. Profitability will depend on maintaining cost management as the industry returns to more typical levels of output and with high fuel costs set to persist for some time. And the value chain is included in that. To aid in the industry’s revival, our suppliers—including airports and providers of air navigation services—need to put just as much effort into cost management as their clients, according to Walsh.

All areas’ financial performance is anticipated to improve in 2022 compared to 2021. (all regions improved in 2021 compared with 2020 as well).

Lower vaccination rates in Africa have so far slowed the continent’s rebound in aviation travel. However, some catching up is probably going to happen this year, which will help the economy perform better financially. In 2022, net losses are anticipated to be $0.7 billion. Demand (RPKs) is anticipated to reach 72.0% of pre-crisis levels in 2019 and capacity will be 75.2% full.

The only region to achieve profitability in 2022 will be North America, which is predicted to remain the region with the best performance. In 2022, net profit is anticipated to reach $8.8 billion thanks to the sizeable US domestic market and the reopening of overseas markets, notably the North Atlantic. Demand (RPKs) is anticipated to return to pre-crisis levels in 2019 at 95.0%, and capacity will be at 99.5%.

The war between Russia and Ukraine will continue to obstruct traffic between Europe and Asia-Pacific as well as inside Europe. Although the region is predicted to have a net loss of $3.9 billion in 2022, the war is not anticipated to halt the travel industry’s revival. Demand (RPKs) is anticipated to reach 82.7% of pre-crisis levels in 2019 and capacity to reach 90%.

For Asia-Pacific airlines, the region has lagged in the recovery thus far due to stringent and ongoing travel restrictions (particularly in China) as well as an uneven vaccine distribution. Demand for travel is anticipated to rise quickly when the limitations are lifted. It is anticipated that net losses will drop to $8.9 billion in 2022. Demand (RPKs) is anticipated to reach 73.7 % of pre-crisis levels in 2019 and capacity to reach 81.5 %.

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