News from IATA AGM Istanbul Turkey

• Blocked Airline Funds Threaten Connectivity
• Unruly Passenger Incidents in Post-Pandemic Increase
• IATA Releases Strategic Roadmaps to Showcase Critical Steps Needed to Reach Net Zero by 2050
• Airline Profitability Outlook Strengthens
• Yvonne Manzi Makolo Chairs IATA Board of Governors

The 79th IATA Annual General Meeting and World Air Transport Summit, with Pegasus Airlines as the host airline kicked off on Sunday in Istanbul, Turkey.

Here is a summary of some of the news coming from the event.

Blocked Airline Funds Threaten Connectivity

The International Air Transport Association (IATA) warned that rapidly rising levels of blocked funds are a threat to airline connectivity in the affected markets. The industry’s blocked funds have increased by 47% to $2.27 billion in April 2023 from $1.55 billion in April 2022. 

“Airlines cannot continue to offer services in markets where they are unable to repatriate the revenues arising from their commercial activities in those markets. Governments need to work with industry to resolve this situation so airlines can continue to provide the connectivity that is vital to driving economic activity and job creation,” said Willie Walsh, IATA’s Director General.

The top five countries account for 68.0% of blocked funds. These comprise:

• Nigeria ($812.2 million)
• Bangladesh ($214.1 million)
• Algeria ($196.3 million)
• Pakistan ($188.2 million)
• Lebanon ($141.2 million) 

IATA urged governments to abide by international agreements and treaty obligations to enable airlines to repatriate these funds arising from the sale of tickets, cargo space, and other activities.

Unruly Passenger Incidents in Post-Pandemic Increase

The International Air Transport Association (IATA) released a new analysis showing that reported unruly passenger incidents increased in 2022 compared to 2021. IATA called for more states to take the necessary authority to prosecute passengers under Montreal Protocol 2014 (MP14).

Latest figures show that there was one unruly incident reported for every 568 flights in 2022, up from one per 835 flights in 2021. The most common categorizations of incidents in 2022 were non-compliance, verbal abuse and intoxication. Physical abuse incidents remain very rare, but these had an alarming increase of 61% over 2021, occurring once every 17,200 flights.

“The increasing trend of unruly passenger incidents is worrying. Passengers and crew are entitled to a safe and hassle-free experience on board. For that, passengers must comply with crew instructions. While our professional crews are well trained to manage unruly passenger scenarios, it is unacceptable that rules in place for everyone’s safety are disobeyed by a small but persistent minority of passengers. There is no excuse for not following the instructions of the crew,” said Conrad Clifford, IATA’s Deputy Director General.

Although non-compliance incidents initially fell after the mask mandates were removed on most flights, the frequency began to rise again throughout 2022 and ended the year some 37% up on 2021. The most common examples of non-compliance were: 

• Smoking of cigarettes, e-cigarettes, vapes and puff devices in the cabin or lavatories
• Failure to fasten seatbelts when instructed
• Exceeding the carry-on baggage allowance or failing to store baggage when required
• Consumption of own alcohol on board

Two-pillar strategy

A two-pillar strategy is in place for the needed zero-tolerance approach to unruly behavior. 

1. Regulation: Ensure governments have the necessary legal authority to prosecute unruly passengers, regardless of their state of origin and to have a range of enforcement measures that reflect the severity of the incident. Such powers exist in the Montreal Protocol 2014 (MP14), and IATA is urging all states to ratify this as soon as possible. To date, some 45 nations comprising 33% of international passenger traffic have ratified MP14.  
    
2. Guidance to prevent and de-escalate incidents: Prevent incidents through collaboration with industry partners on the ground (such as airports, bars and restaurants and duty-free shops), including for example awareness campaigns on the consequences of unruly behavior. Additionally, sharing best practices, including training, for crew to de-escalate incidents when they occur. A new guidance document was published at the beginning of 2022 gathering best practices for airlines and providing practical solutions to governments on public awareness, spot fines, and fixing jurisdiction gaps.

“In the face of rising unruly incident numbers, governments and the industry are taking more serious measures to prevent unruly passenger incidents. States are ratifying MP14 and reviewing enforcement measures, sending a clear message of deterrence by showing that they are ready to prosecute unruly behavior. For the industry’s part, there is greater collaboration. For example, as the vast majority of intoxication incidents occur from alcohol consumed prior to the flight, the support of airport bars and restaurants to ensure the responsible consumption of alcohol is particularly important. 

“No one wants to stop people having a good time when they go on holiday—but we all have a responsibility to behave with respect for other passengers and the crew. For the sake of the majority, we make no apology for seeking to crack down on the bad behavior of a tiny number of travelers who can make a flight very uncomfortable for everyone else,” said Clifford. 

IATA Releases Strategic Roadmaps to Showcase Critical Steps Needed to Reach Net Zero by 2050

The International Air Transport Association (IATA) unveiled a series of roadmaps aimed at providing step-by-step detailing of critical actions and dependencies for aviation to achieve net zero carbon emissions by 2050. These roadmaps address aircraft technology, energy infrastructure, operations, finance, and policy considerations leading to net zero.

With the adoption of a Long Term Aspirational Goal (LTAG) at ICAO’s 41st Assembly, governments and industry are aligned to reach the same net zero CO2 emissions goal by 2050. As policy initiatives lay the foundation on which many of the needed innovations and actions will rest, these roadmaps will be a critical reference point for policy makers. 

“The roadmaps are the first detailed assessment of the key steps necessary to accelerate the transition to net zero by 2050. Together, they show a clear direction and will evolve as we dig deeper to set interim milestones on the way to net zero. I must emphasize that the roadmaps are not just for airlines. Governments, suppliers, and financiers cannot be spectators in aviation’s decarbonization journey. They have skin in the game. The roadmaps are a call to action for all aviation's stakeholders to deliver the tools needed to make this fundamental transformation of aviation a success with policies and products fit for a net-zero world,” said Willie Walsh, IATA’s Director General. 

The roadmaps were not developed in isolation. A peer-to-peer review, complemented by a modeling tool provided by the Air Transportation Systems Laboratory at University College London (UCL), was conducted to calculate emission reductions for each technology. 

Highlights of each roadmap include:

• Aircraft Technology: the development of more efficient aircraft and engines. Particularly important are the steps needed to enable aircraft powered by 100% sustainable aviation fuel (SAF), hydrogen or batteries. All development milestones are backed-up by announced investment and demonstrator programs. Also included are new engines, aerodynamics, aircraft structures, and flight systems.
   
• Energy and New Fuels Infrastructure: the focus is on the fuels and new energy carrier infrastructure upstream from airports needed to facilitate the use of aircraft powered by SAF or hydrogen. Renewable energy plays a vital role in meeting the aviation sector's energy demand, and the roadmap outlines milestones to enable the necessary infrastructure developments.
   
• Operations: the opportunities for reducing emissions and improving energy efficiency by improving the way existing aircraft are operated. Automation, big data management, and the integration of new technologies are key enablers for optimizing air traffic management and enhancing the overall efficiency of the air transportation system.
   
• Policy: the need for globally aligned strategic policies to provide incentives and support for the aviation industry's transition to a net-zero future. As with all other successful energy transitions, collaboration between governments and industry stakeholders is crucial in creating the necessary framework to achieve the decarbonization goals.
   
• Finance: how to finance the cumulative $5 trillion needed for aviation to achieve net zero by 2050. This includes technological advancements, infrastructure developments, and operational improvements.

The challenges to ramp up SAF production are a good illustration of the importance of these roadmaps. As a drop-in solution, SAF is expected to deliver about 62% of carbon mitigation needed to achieve net zero by 2050. But even though SAF is expected to be fully implementable with future aircraft fleet, it still has major inter-dependencies on policy, aircraft technology, energy infrastructure, financing, and operations for which these roadmaps are critical. 

"The roadmaps show where all stakeholders should focus their efforts. There are two certainties. By 2050 we need to be at net zero carbon emissions. And the steps to get there that are outlined in these roadmaps will evolve as the industry’s expertise grows. Policy is particularly important early on as it, to a large extent, sets the scene for private sector investors to move.  With that, the private sector can decarbonize at scale and with speed," said Marie Owens Thomsen, SVP Sustainability and Chief Economist at IATA.

“Without the right policy incentives and bold investments, many of the technologies and innovations simply won’t happen at scale. Everything is related, and that is why we have the five roadmaps to tie all the parallel elements together and give our stakeholders, including governments, a complete understanding of everything that needs to happen,” said Owens Thomsen.

“Time is of the essence, as highlighted by these roadmaps. Immediate action is required to commercialize scalable zero-carbon energy storage solutions along with the required infrastructure, and to build a business case for their rapid delivery at Gigawatt scale,” said Prof. Andreas Schafer, Director of UCL’s Air Transport Systems Laboratory.

Access the roadmaps here. 

Airline Profitability Outlook Strengthens

The International Air Transport Association (IATA) announced an expected strengthening of airline industry profitability in an upgrade of its outlook for 2023. Highlights include:

• Airline industry net profits are expected to reach $9.8 billion in 2023 (1.2% net profit margin) which is more than double the previous forecast of $4.7 billion (December 2022). 
   
• Airline industry operating profits are expected to reach $22.4 billion in 2023, much improved over the December forecast of a $3.2 billion operating profit. It is also more than double the $10.1 billion operating profit estimated for 2022. 
   
• Some 4.35 billion people are expected to travel in 2023, which is closing in on the 4.54 billion who flew in 2019.
   
• Cargo volumes are expected to be 57.8 million tonnes, which has slipped below the 61.5 million tonnes carried in 2019 with a sharp slowing of international trade volumes.
   
• Total revenues are expected to grow 9.7% year over year to $803 billion. This is the first time that industry revenues will top the $800 billion mark since 2019 ($838 billion). Expense growth is expected to be contained to an 8.1% annual increase.

“Airline financial performance in 2023 is beating expectations. Stronger profitability is supported by several positive developments. China lifted COVID-19 restrictions earlier in the year than anticipated. Cargo revenues remain above pre-pandemic levels even though volumes have not. And, on the cost side, there is some relief. Jet fuel prices, although still high, have moderated over the first half of the year,” said Willie Walsh, IATA’s Director General.

The return to net profitability, even with a 1.2% net profit margin, is a major achievement. First, it was achieved at a time of significant economic uncertainties. And second, it follows the deepest losses in aviation’s history ($183.3 billion of net losses for 2020-2022 (inclusive) for an average net profit margin of -11.3% over that period). It should be noted that the airline industry entered the COVID-19 crisis at the end of a historic profit streak that saw an average net profit margin of 4.2% for the 2015-2019 period. 

“Economic uncertainties have not dampened the desire to travel, even as ticket prices absorbed elevated fuel costs. After deep COVID-19 losses, even a net profit margin of 1.2% is something to celebrate! But with airlines just making $2.25 per passenger on average, repairing damaged balance sheets and providing investors with sustainable returns on their capital will continue to be a challenge for many airlines,” said Walsh.   

Outlook Drivers

Revenues are rising (9.7%) faster than expenses (8.1%), strengthening profitability. 

Revenue: Industry revenues are expected to reach $803 billion in 2023 (+9.7% on 2022 and -4.1% on 2019). An inventory of 34.4 million flights is expected to be available in 2023 (+24.4% on 2022, -11.5% on 2019).

• Passenger revenues are expected to reach $546 billion (+27% on 2022, -10% on 2019). With COVID-19 restrictions now removed in all major markets, the industry is expected to reach 87.8% of 2019 levels of revenue passenger kilometers (RPKs) for the year with strengthening passenger traffic as the year progresses. The high demand for travel in many markets is keeping yields strong with a modest 1.1% decline expected in 2023 compared to 2022 levels (following increases of 9.8% in 2022 and 3.7% in 2021). 

Efficiency levels are high with an expected average passenger load factor of 80.9% for 2023. That is very near the 2019 record performance of 82.6%.

IATA’s May 2023 passenger polling data supports the optimistic outlook, with 41% of travelers indicating they expect to travel more in the next 12 months than in the previous year and 49% expect to undertake the same level of travel. Moreover, 77% of respondents indicated that they were already traveling as much or more than they did pre-pandemic. 

• Cargo revenues are expected to be $142.3 billion. While that is down sharply from $210 billion in 2021 and $207 billion in 2022, it is well above the $100 billion earned in 2019. Yields will be negatively impacted by two factors: (1) the ramping-up of passenger capacity which automatically increases available belly capacity for cargo and (2) the potential negative effects on international trade of economic cooling measures introduced to fight inflation. Yields are expected to correct with a 28.6% decline this year, but still remain high by all historical comparisons. Note that yield increases of 54.7% were recorded in 2020, 25.9% in 2021 and 7.4% in 2022.

Expenses are expected to grow to $781 billion (+8.1% on 2022 and -1.8% on 2019).  

• Jet fuel costs are expected to average $98.5/barrel in 2023 for a total fuel bill of $215 billion. That is cheaper than the $111.9 / barrel previously expected (December 2022) and the average cost of $135.6 experienced in 2022. 

High crude oil prices were exaggerated for airlines as the crack spread (premium paid to refine crude oil into jet fuel) averaged more than 34% for 2022—significantly above the long-run average. As a result, fuel was responsible for almost 30% of total expenses. In recent months, the crack spread has narrowed, and the full year average crack spread is expected to fall to around 23%, which is more closely aligned with the historical average rate.  Fuel costs will account for 28% of the average cost structure, which is still above the 24% of 2019.

• Non-Fuel expenses have been controlled well by airlines despite inflationary pressures. With fixed costs being distributed over a larger scale of activity, non-fuel unit costs per available tonne kilometre (ATK) are expected to fall to 39 cents per ATK. That is -6.4% compared to 2022 (41.7 cents /ATK) and marks a return to about pre-COVID levels.  Total non-fuel costs are expected to reach $565 billion in 2023.

Risks

The economic and geopolitical environment presents several risks to the outlook. With just $22.4 billion of operating profit (2.8%) standing between $803 billion of revenues and $781 billion in expenses, industry profitability is fragile and could be affected (positively or negatively) by a number of factors. In particular, consideration should be given to:

• Inflation fighting measures are maturing at different rates in different markets. Central banks are calibrating the best levels for interest rates to have a maximum cooling effect on inflation while avoiding tipping economies into recession. An early or lower end to rate rises could stimulate markets for a stronger year-end outlook. Equally, the risk of recession remains. Should recession lead to job losses, the industry’s outlook could shift negatively.
   
• War in Ukraine is not having a major impact on profitability for most airlines. A currently unanticipated peace could carry the potential for cost improvements with lower oil prices and efficiencies from the removal or easing of airspace restrictions. An escalation, however, would likely have negative prospects for global aviation. Already broader geopolitical tensions are weighing upon international trade and any escalation of such tensions represents a downside risk to the industry outlook.  
   
• Supply chain issues continue to impact global trade and business. Supply chains are shifting to fill gaps in resilience caused by current geopolitical tensions and the challenges experienced during COVID-19. Airlines have been directly impacted by aircraft parts supply chain ruptures which aircraft and engine manufacturers have failed to sort out. This is negatively impacting the delivery of new aircraft and the ability of airlines to maintain and deploy existing fleets.
   
• Regulatory cost burdens are at risk of increase from increasingly interventionist regulators. In particular, the industry could face rising costs of compliance for increasingly punitive passenger rights regimes and regional environment initiatives. 

Regional Round Up

While the global airline industry is expected to return to profitability in 2023, financial performance across regions remains diverse. The positive news is that industry financials are improving in all regions from the COVID-related depths of 2020, although not all regions are expected to deliver a profit this year. 

North American Carriers

2023 Net Profit (f)	2022 Net Profit (e)	2023 Demand (RPK)		Capacity (ASK)
		Compared to 2022	Compared to 2019	Compared to 2022	Compared to 2019
$11.5b	$9.1b	+16.5%	+2%	+16.4%	+5%

North America remains the standout region in terms of financial performance.  Consumer spending has remained solid, despite cost-of-living pressures, and the demand for air travel remains robust; air passenger demand is forecast to exceed its pre-COVID (2019) level this year. 

European Carriers 

2023 Net Profit (f)	2022 Net Profit (e)	2023 Demand (RPK)		Capacity (ASK)
		Compared to 2022	Compared to 2019	Compared to 2022	Compared to 2019
$5.1b	$4.1b	+19.6%	-6%	+18.8%	-2%

Notwithstanding the various capacity constraints experienced over the summer period, European carriers were able to return to profit in 2022. That profitability will strengthen further in 2023. The key regional risks relate to the war in Ukraine, labor unrest and concerns about economic performance in some key countries. 

Asia-Pacific Carriers 

2023 Net Profit (f)	2022 Net Profit (e)	2023 Demand (RPK)		Capacity (ASK)
		Compared to 2022	Compared to 2019	Compared to 2022	Compared to 2019
-$6.9b	-$13.5b	+63.0%	-29%	+48.5%	-26%

Now that all economies in the region have lifted COVID travel restrictions, the industry recovery is underway. A sharp rise in both passenger volumes and capacity is expected to be reflected in a sizeable improvement in 2023 financial results and a narrowing of the gap to other regions. 

Middle East Carriers 

2023 Net Profit (f)	2022 Net Profit (e)	2023 Demand (RPK)		Capacity (ASK)
		Compared to 2022	Compared to 2019	Compared to 2022	Compared to 2019
$2.0b	$1.4b	+20.8%	-7%	+15.9%	-13%

The region’s return to profitability in 2022 was supported by a significant increase in the passenger load factor of almost 25 percentage points, outstripping the performance of the other regions.  At the same time, Middle East carriers have been swiftly rebuilding their international networks and in March 2023, the region’s international connectivity had returned to 98% of its pre-COVID level. 

Latin American Carriers 

2023 Net Profit (f)	2022 Net Profit (e)	2023 Demand (RPK)		Capacity (ASK)
		Compared to 2022	Compared to 2019	Compared to 2022	Compared to 2019
-$1.4b	-$3.9b	+14.2%	-2%	+13.5%	-1%

Passenger volumes are recovering quickly, but the financial performance varies considerably across the region. The region will remain in the red, although some airlines are expected to post solid profits. Overall, industry financial performance is expected to continue to improve, but a challenging economic backdrop in a number of countries in the region is dampening the pace of recovery.  

African Carriers 

2023 Net Profit (f)	2022 Net Profit (e)	2023 Demand (RPK)		Capacity (ASK)
		Compared to 2022	Compared to 2019	Compared to 2022	Compared to 2019
-$0.5b	-$0.8b	+30.1%	-11%	+22.7%	-17%

Africa remains a difficult market in which to operate an airline, with economic, infrastructure and connectivity challenges impacting the industry performance.  Nonetheless, despite these challenges, there is still robust demand for air travel in the region which underpins the continued move towards a return to overall industry profitability.
 
2022

The improvement in industry financial performance in 2022 outpaced previous expectations. Net industry losses for 2022 are now estimated to be -$3.6 billion, a strengthening from the previously estimated -$6.9 billion loss (December 2022). At the operating level, and notwithstanding the wide variation in performance, the latest data point to the industry having returned to profit in 2022 on a pre-tax basis.  

Bottom Line

“Resilience is the story of the day and there are many good reasons for optimism. Achieving profitability at an industry level after the depths of the COVID-19 crisis opens up much potential for airlines to reward investors, fund sustainability, and invest in efficiencies to connect the world even more effectively. That’s a big ‘to do’ list to achieve with just a 1.2% net profit margin. That’s why we call on governments to keep their focus on initiatives that will strengthen safe, sustainable, efficient, and profitable connectivity,” said Walsh.

“Priorities for 2023 include SAF production incentives to accelerate progress toward net zero carbon emissions, ensuring the integrity of CORSIA as the economic measure applied to international aviation, eliminating inefficiencies in air traffic management and applying global standards consistently,” said Walsh.

Passengers are counting on a safe, sustainable, efficient and profitable airline industry. A recent IATA poll of travelers in 11 global markets revealed that 81% of those surveyed emerged from the pandemic with a greater appreciation of the freedom that flying makes possible. The same study also demonstrated the important role that travelers see the airline industry playing: 

• 90% said that connectivity by air is critical to the economy
• 91% said that air travel is a necessity for modern life
• 88% said that air travel has a positive impact on societies
• 82% said that the global air transport network is a key contributor to the UN Sustainable Development Goals (SDGs)
• 96% expressed satisfaction with their last flight, and
• 77% said that flying was good value for money.

 Yvonne Manzi Makolo Chairs IATA Board of Governors

The International Air Transport Association (IATA) announced that RwandAir CEO Yvonne Manzi Makolo has assumed her duties as Chair of the IATA Board of Governors (BoG) for a one-year term, effective from the conclusion of the 79th IATA Annual General Meeting (AGM) in Istanbul, Türkiye on 5 June. 



Makolo is the 81st chair of the IATA BoG and the first woman to take on this role. She has served on the BoG since November 2020. She succeeds Pegasus Airlines Chairperson of the Board Mehmet Tevfik Nane who will continue to serve on the BoG.

“I am honored and pleased to take on this important role. IATA plays a critical role for all airlines—big and small, various business models, and in all corners of the world. Leading a medium-sized airline in Africa gives me a unique perspective on issues that airlines hold in common. At the top of the agenda are decarbonization, improving safety, the transformation to modern airline retailing, and ensuring we have cost-efficient infrastructure. I am particularly pleased to be taking on this role as IATA launches Focus Africa with the aim of unifying the continent’s stakeholders so that together we can strengthen the contribution of aviation to Africa’s social and economic development,” said Makolo.

Makolo started her aviation career in 2017 when she was appointed as RwandAir’s Deputy CEO in Charge of Corporate Affairs. She was named CEO in April 2018. Yvonne brought 11 years of commercial expertise to her current role, having joined telecommunications company MTN Rwanda in 2006, rising to the positions of Chief Marketing Officer and Acting CEO. Under her leadership, RwandAir has become one of Africa’s fastest growing airlines with a fleet of 13 modern aircraft. She has led cultural change at the airline with a focus on inclusion and diversity and growing the number of women in under-represented roles.

“I look forward to working with Yvonne as we tackle the important challenges of sustainability, rebuilding the aviation workforce while growing diversity and reinforcing the global standards that are so critical for efficient connectivity. I want to thank Mehmet for his strong support and leadership over the past year as the industry emerged from the COVID-19 and in particular, his encouragement in working for greater gender diversity,” said Willie Walsh, IATA’s Director General.

Chair Elect and Board of Governors Appointments
IATA announced that Pieter Elbers, CEO of IndiGo, will serve as Chair of the BoG from June 2024, following Makolo’s term.

See list of Board of Governors