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Rising passenger demand to boost profits for Middle East airlines

Strong passenger demand and aviation hubs that connect long-haul flights will boost the profits of Middle Eastern airlines this year, says the International Air Transport Association (Iata).

Strong passenger demand and aviation hubs that connect long-haul flights will boost the profits of Middle Eastern airlines this year, says the International Air Transport Association (Iata).

The association expects these airlines to post profits of US$1.6 billion this year, up from $1.1bn last year.

Earnings next year are expected to be even higher at $2.1bn, according to Iata.

It also expects regional carriers to expand their capacity by 11.3 per cent collectively this year.

“The buffer between profit and loss is very small,” said Tony Tyler, the director general and chief executive of Iata, referring to the global airline industry. “Airlines will make $5 a passenger this year and new taxes can erode that.”

While the profit of $5 per passenger is nearly the cost of a sandwich, it has nonetheless doubled from last year’s per passenger profit of $2.54.

Iata cut its profit forecast made in June for the global sector by $1bn. The sector is expected to earn net profits of $11.7bn on total revenues of $708bn this year, surpassing last year’s net profits of $7.4bn.

Meanwhile, a slowdown in emerging markets (such as India, Brazil and even China) and increased passenger demand have affected the rise in cargo volume. As such, Iata has lowered its cargo growth forecast to 0.9 per cent from its earlier projection of 1.5 per cent.

Globally, cargo revenues are expected to reach $59bn this year, a decline of $8bn from 2011.

In contrast, revenues from carrying passengers are expected to reach $565bn this year, an increase of $68bn over the same period.

“Fuel contributed 31 per cent of the cost and will [contribute] 30 per cent [of the cost] for 2014,” Mr Tyler said.

Oil prices are expected to fall to $105 per barrel of Brent crude next year, from $109 a barrel this year. To put that in perspective, the cost was $49.70 a barrel in 2004.

In view of the high Brent crude prices and slow economic growth, profit margins for both the passenger and cargo markets are expected to continue to decline by 0.5 per cent and 2.1 per cent respectively next year. That is despite the projected increase in passenger growth of 5.8 per cent and cargo growth of 3.7 per cent.

Brian Pearce, Iata’s chief economist, said the Asia Pacific region (which includes Japan and Australia) “is facing the most difficulty because emerging markets are slowing down”.

ssahoo@thenational.ae

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