IATA Predicts A Return To Industry Profitability In 2023


Demand is returning strongly for airlines, but inflation, supply chain and labor constraints and high oil prices are dampening the outlook.

Credit: trekandshoot/Alamy Stock Photo

As the global airline industry heads into 2023, the worst and most disruptive phase of its history appears to be over.

Demand has come back big time wherever travel restrictions related to the attempted containment of COVID-19 have been lifted. What the industry is facing now feels more familiar: an astonishing level of uncertainty, major fluctuations and seemingly longer-term shifts in economic factors well outside of its control—as well as more than the usual operational challenges for airports, aircraft manufacturers, suppliers and regulators.

  • High employment and travel demand will help
  • High oil prices, inflation and rising interest rates present risks

A few snapshots of the risks: Kerosene was almost twice as expensive in 2022 than the International Air Transport Association (IATA) anticipated at the beginning of the year due to the Russia-Ukraine war and its fallout. The U.S. dollar also has appreciated substantially vis-a-vis the euro and other currencies, changing the economics for airlines with large exposure to U.S. dollar debt and a high share of revenues in other now weaker currencies. After a long period at very low levels, interest rates have risen again, making debt service more expensive. And inflation and higher labor costs appear to all but guarantee a structural increase in operating costs.

A look back of about 10 years helps put the situation into perspective. At that time, the industry was emerging from the 2008-09 global financial crisis and entering an unusually long upturn that resulted in exceptionally high profits, particularly among U.S. legacy carriers. This unprecedented surge was no coincidence, as the airline industry benefited from economic fundamentals that worked in its favor: low interest rates, generally low fuel costs, a weaker dollar and customers who were willing to spend as travel replaced other “consumer goods” as a top priority. And the 2010s were a decade of mostly talk but little action about tackling climate change. People simply traveled anyway.

Almost all the factors then supporting growth now point in a different direction. As climate activists—in some of the more extreme cases—block European runways, the environment seems finally to be getting more attention. Aviation is in that spotlight.

In spite of that shift in fundamentals, IATA Director General Willie Walsh says: “I don’t think we should be too worried. Airline management teams should be reasonably optimistic.” He does concede that “decisions have to be a little more cautious.” And IATA Chief Economist Marie Owens Thomsen says the risks are “skewed to the downside.”


IATA’s forecast is that the airline industry will return to overall profitability in 2023. If IATA has its numbers right, the sector will post a combined $4.7 billion net profit, equivalent to a tiny 0.6% margin. Therefore, airlines likely will find it difficult to recover their capital costs, which continue to rise. That predicted profit would follow an estimated combined loss of $186.6 billion for 2020-22 and a $6.9 billion loss for 2022 alone. But it is also a fraction of the profitability levels the industry enjoyed over much of the 2010s, which peaked in 2017 at $37.6 billion.

The risks the industry is facing are obvious but complicated. One is economic—if global GDP growth slows, it is likely air travel will as well. In a recession, the effect would be even worse. Margins are under pressure because costs may inadvertently rise. Even though many factors now point to Russia ultimately losing the war against Ukraine—or at least not achieving its desired objectives—that does not mean it will end soon. That hoped-for outcome could lead to lower energy prices or even an end to airspace restrictions.


As Owens Thomsen points out, nominal interest rates have risen as central banks tackle inflation. However, because of that inflation, real interest rates are still negative. Debt-holders still benefit, while savings are worth less. An unusually high level of employment, as is currently the case, would be supportive of demand even in a mild recession. The U.S. unemployment rate was at 3.7% in November; in Europe, it was 6% in October, its lowest level in 32 years. Airlines hope that as long as people have jobs, they will continue to fly.

Fuel costs are expected to remain high, although perhaps not quite as much so as in 2022. IATA projects that  airlines will spend $229 billion on fuel in 2023, compared with $222 billion in 2022. The association forecasts that the price per barrel will settle at an average of $112—the average in 2022 was $139. Another negative element is that the crack spread—the difference between the price of crude oil and kerosene—is predicted to remain high as a lack of capacity ensures that refining costs will be elevated. In more normal times, fuel makes up 20-25% of airlines’ overall costs, but in 2023 the share will be around 30%.

The strong U.S. dollar is making aircraft leasing, debt payments and fuel even more expensive, unless an airline’s revenues are largely in the U.S. currency.

Labor costs are another challenge. With high inflation, airlines are under enormous pressure to raise salaries for many of their lower-paying jobs. And where labor supply is constrained—such as for U.S. pilots—unions are successfully demanding unheard-of pay increases for their members.

Regional performance varies greatly. Airlines in North America continue to lead in terms of profitability, but the 3.7% margin they are expected to reach is not stellar. Carriers in the Middle East and Europe also are forecast to return to profitability, while airlines in Latin America, Africa and Asia-Pacific likely will continue to drag down overall industry performance.

For the Asia-Pacific region, Chinese restrictions are the main cause of problems. The government only recently appeared to change its strict COVID-19 policies—after many protests erupted—moving away from regional or citywide lockdowns that have had such a devastating impact on its people and economy. Residents now can self-quarantine if they test positive for the novel coronavirus. It is not clear yet what the course change means for air travel. An opening of the China market has been predicted many times by industry executives, but it has to yet happen. Nonetheless, Walsh predicts such an opening will happen in 2023.

If the opening does actually happen this time, it likely will result in unprecedented growth in international and long-haul flying to and from China—with Chinese tourists returning to foreign locations they had visited in the hundreds of millions until 2019 and business travel into the country coming back as commercial relationships are restored and renewed. Most airlines operating long-haul networks would benefit. In Europe, that would be mostly Air France-KLM and Lufthansa Group; in the U.S., Delta Air Lines and United Airlines; in Africa, Ethiopian Airlines, which thrived on Chinese-African business relations until the COVID-19-induced break. Network carriers in the Middle East such as Qatar Airways and Emirates have had significant capacity into China, too.

In terms of passenger numbers, IATA expects the industry to reach 2019 levels in 2024, but not necessarily as measured by revenue passenger kilometers. The distinction is important, as it describes a change in networks: Passengers are coming back, but they are still flying relatively more short-haul than long-haul legs. The phenomenon has been visible since flight restrictions have receded: Domestic traffic was the first to come back, regional international followed, and long-haul is still lagging. But IATA is seeing international and domestic demand converging in most markets already.

With supply chains still being disrupted to a degree, operating a reliable airline schedule will continue to be tougher than usual well into 2023. Over the past few months, many carriers have had to ground subfleets because they lacked spare parts, particularly for engines. “The scale of the problem is worse than I had realized,” Walsh admits. But it is not only engines: Slower chip production is affecting inflight entertainment and delivery of seats—and ultimately of aircraft.

Airbus and Boeing have fallen well behind their original output projections, forcing their customers to revisit capacity plans. Narrowbody deliveries are routinely several months behind schedule. But demand for new aircraft is strong as airlines seek to replace aging, less fuel-efficient aircraft or simply need additional capacity. For the time being, the demand is largely for narrowbodies. But lessors already are seeing stronger interest in widebodies, a trend that many expect will translate into more orders for long-haul aircraft soon.

A new large airline is expected to be launched in 2023, too, an event that should attract particular attention in the Middle East. As part of its economic development plans, Saudi Arabia plans to invest around $30 billion in the creation of a new, second national airline called RIA. The carrier is slated to start flying in the first half of the year and is intended to emulate the Emirates model. A very large new airport for the Saudi capital, Riyadh, is planned as well. RIA is in negotiations with Airbus and Boeing about a major order for widebodies—which would start the year for the OEMs and the airline industry on a positive note. 

Jens Flottau

Based in Frankfurt, Germany, Jens is executive editor and leads Aviation Week Network’s global team of journalists covering commercial aviation.