Re-opening of long-haul routes helps reduce airline losses

Emirates Airlines

• Passenger numbers in 2022 reach 83 percent of pre-pandemic levels
• Spectre remains of high fuel costs and slow return of business travel
• Airline fuel costs globally this year are expected to be $192 billion

Middle East aviation industry losses are expected to narrow to $1.9 billion in 2022 after the region’s airlines lost $4.7 billion last year.

According to the latest figures released by the International Air Transport Association (IATA), the re-opening of many long-haul routes in particular has been a “welcome boost” to airlines in the Middle East.  

It added that demand is expected to reach 79.1 percent of pre-pandemic levels while capacity will rise to 80.5 percent.

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John Grant, chief analyst at OAG and partner of Midas Aviation, told AGBI: “All of the major Middle East carriers rely on long-haul international traffic since they have limited domestic markets. 

“Compared to last June international flights with a range of over 2,500 nautical miles have increased by some 75 percent as markets either side of their pivotal hubs reopen.” 

Emirates is now operating more flights over 2,500 nautical miles than their competitors and have nearly doubled (up by 94 percent) their frequency in this sector.

Qatar Airways have increased by some 62 percent and Etihad a slower 20 percent as it also adopts a more cautious strategic recovery.

“For all these airlines the next few months look encouraging but the spectre of increased operating costs, a global recession and the question mark that is the return of the corporate traveller may be an early sign of a difficult few months until the wider economic situation improves,” Grant added.

Olivier Ponti, VP Insights, ForwardKeys, said: “Throughout the pandemic, we have seen pent-up demand pushing in one direction and coronavirus travel restrictions pushing in the opposite direction.

“So, it’s to be expected that as restrictions are relaxed air travel comes back. 

“The Middle East is a region of the world where fantastic efforts have been made to invest in tourism. This strategy is paying dividends, as places which used to be known as air travel hubs have become exciting destinations in their own right. 

“That trend is only set to continue with Saudi Arabia’s recent substantial investment in tourism infrastructure.”

Around the world

Globally, IATA announced today an upgrade to its outlook for the airline industry’s 2022 financial performance as the pace of recovery from the coronavirus crisis quickens. 

Industry losses are expected to reduce to $9.7 billion from the October 2021 forecast for an $11.6 billion loss for a net loss margin of 1.2 percent.

That is a huge improvement from losses of $137.7 billion in 2020 and $42.1 billion in 2021.

Industry-wide profitability in 2023 appears within reach with North America already expected to deliver an $8.8 billion profit in 2022, IATA said.

It added that industry optimism and commitment to emissions reductions are evident in the expected net delivery of over 1,200 aircraft in 2022.

Strong pent-up demand, the lifting of travel restrictions in most markets, low unemployment in most countries and expanded personal savings are fuelling a resurgence in demand that will see passenger numbers reach 83 percent of pre-pandemic levels in 2022.

Despite economic challenges, cargo volumes are also expected to set a record high of 68.4 million tonnes in 2022.

“Airlines are resilient,” said Willie Walsh, IATA’s director general.

“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.

“The reduction in losses is the result of hard work to keep costs under control as the industry ramps up. 

Cost control essential

“The improvement in the financial outlook comes from holding costs to a 44 percent increase while revenues increased 55 percent.

“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.” 

Globally, industry revenues are expected to reach $782 billion (up 54.5 percent on 2021), 93.3 percent of 2019 levels.

Flights operated in 2022 are expected to total 33.8 million, which is 86.9 percent 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. 

Cargo revenues are expected to account for $191 billion, down slightly from the $204 billion recorded in 2021, but nearly double the $100 billion achieved in 2019. 

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

At $192 billion, fuel is the industry’s largest cost item in 2022 as airlines are expected to consume 321 billion litres of fuel. War in Ukraine is keeping prices for Brent crude oil high. Nonetheless, fuel will account for about a quarter of costs in 2022. 

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 percent on 2021 as the industry rebuilds from the significant decline in activity in 2020.

Employment is still, however, below the 2.93 million jobs in 2019 and is expected to remain below this level for some time. 

On the future response to the coronavirus, Walsh added: “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.”