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Abu Dhabi, UAESaturday 17 November 2018

Airlines face difficulty as they report lower profit margins, Iata says

But yields look to have stabilized, so the pressure on margins may ease, the organisation said.

The operating environment for global airlines will remain challenging after carriers in regions such as Europe reported lower first-quarter profit margins on higher costs and weak yields, the International Air Transport Association (Iata) reported.

European carriers reported a drop in earnings before interest and taxes (EBIT) margins during the first quarter, while North American and Asia-Pacific airlines bucked the trend. Some Middle Eastern airlines such as Emirates have also reported dismal profit and profit margins.

“Upward pressure on airline costs mean that the operating environment will remain challenging,” Iata said.

“But with yields looking to have stabilized, the squeeze on margins may ease over the period ahead.”

The EBIT margin for listed European airlines dropped by 0.3 per cent in the first quarter, compared to a rise of 8 per cent for North American airlines and 2.1 per cent for Asia-Pacific airlines. Iata studied 24 airlines worldwide for the report.

There has been an oversupply of seats in the aviation, leading to the challenging environment. During the first quarter, global airlines took deliveries of 352 aircraft, up from 340 during the same period last year.

Emirates said on Thursday that profit plunged by 82.5 per cent year-on-year to Dh1.25 billion in its financial year ending March 31. Its profit margin dropped to 1.5 per cent during the 2016-2017 financial year, compared to 8.4 per cent a year earlier. The drop was attributed to cheaper tickets, currency fluctuations and higher costs, including from jet fuel and aircraft operating leases.

The sharjah-based low cost carrier Air Arabia also reported a 10 per cent drop in first-quarter net profit to Dh103 million and a lower profit margin at 8.7 per cent, a 5 per cent decline from same period last year.

Emirates flew a higher number of passengers at 56 million, 8 per cent more than a year earlier.

“While they flew more passengers, they did so as a result of competitive fares that entices people to fly with them – this is a direct result of excess market capacity and is also why Emirates’ load factors slipped,” said Saj Ahmad, the chief analyst at London-based StrategicAero Research, referring to the lower profit margins at Emirates.

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