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Abu Dhabi, UAEMonday 24 September 2018

Middle East airline profits to double next year, says Iata

Strong demand, efficiency and reduced interest payments will help global airlines improve net profitability despite rising costs

Iata said Middle East carriers route to and from North America continues to be affected by the now-lifted ban on personal electronic devices. Issouf Sanago/AFP
Iata said Middle East carriers route to and from North America continues to be affected by the now-lifted ban on personal electronic devices. Issouf Sanago/AFP

Middle East carriers are forecast to see net profits double to US$600 million in 2018, with demand expected to outpace announced capacity expansion, according to the International Air Transport Association (Iata).

The region's carriers profitability will grow at the fastest pace among all regions, according to the trade body.

Still regional airline profitability in 2017 is projected to be a quarter of the $1.3 billion in profit achieved in 2016.

The region’s carriers face challenges to their business models, Iata said, and from low oil revenues, regional conflict, crowded air space, the impact of travel restrictions to the US, and competition from the new "super connector" [Turkish Airlines]. Despite the challenges, the aviation body said there is positive momentum heading into 2018.

Demand in the region is expected to grow 7 per cent next year, outpacing capacity expansion growth of 4.9 per cent, which is the slowest since 2002.

Regional demand in October grew 6.9 per cent, up from 3.9 per cent in September but below the global growth of 7.2 per cent, Iata said.

"(Middle East) Demand to and from North America fell in year-on-year terms for the seventh consecutive month in September and it remains the only international market not to have grown in annual terms this year," said Iata. "Traffic has been heavily affected by the now-lifted ban on portable electronic devices, as well as from the proposed travel bans to the US."

Globally, Iata forecasts industry net profit to rise to $38.4bn in 2018, an improvement from the $34.5bn expected net profit in 2017, which Iata revised from a $31.4bn forecast in June.

"Airlines are achieving sustainable levels of profitability. It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labour and infrastructure expenses," said Alexandre de Juniac, Iata’s director general and chief executive.

North America will achieve the highest profitability figure of $16.4bn, up from $15.6bn in 2017, and accoudntin for nearly hal of global airline income, Iata said. It is followed by Europe and Asia-Pacific regions.

"This year airlines will safely fly 4 billion people and 60 million tonnes of cargo over some 20,000 city pairs. This is a critical activity for the global economy," said Mr de Juniac. "About a third of the value of goods traded internationally are shipped by air. International air travellers spend about $750bn annually.

Iata said strong demand, efficiency and reduced interest payments will help airlines improve net profitability in 2018 despite rising costs.

"These are good times for the global air transport industry," Mr de Juniac added. "More people than ever are travelling."

Iata said passenger numbers are expected to increase to 4.3 billion in 2018. Passenger traffic is expected to rise 6 per cent - slightly down on the 7.5 per cent growth of 2017 but still ahead of the average of the past 10 to 20 years of 5.5 per cent - which will exceed capacity expansion of 5.7 per cent. This will push up the average load factor to a record 81.4 per cent, helping to drive a 3 per cent improvement in yields. Revenues from the passenger business are forecast to grow to $581bn, up 9.2 per cent on $532bn expected in 2017, according to Iata.

"The demand for air cargo is at its strongest level in over a decade. Airlines are achieving sustainable levels of profitability," said Mr de Juniac.

The cargo business continues to benefit from a strong cyclical upturn in volumes, with some recovery in yields, Iata said in its report. Volumes are expected to grow by 4.5 per cent in 2018, down from the 9.3 per cent growth of 2017. Cargo yields are expected to improve by 4 per cent in 2018, slower than the 5 per cent in 2017.

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Iata said the growth of e-commerce is expected to support continued momentum in the cargo business beyond the rate of expansion of world trade in 2018. Cargo revenues will continue to do well in 2018, reaching $59.2bn, up 8.6 per cent from expected 2017 revenues of $54.5bn.

But Mr de Juniac pointed out the industry also faces longer-term challenges, many of them are in the hands of governments.

"Aviation is the business of freedom and a catalyst for growth and development. To continue to deliver on our full potential, governments need to raise their game - implementing global standards on security, finding a reasonable level of taxation, delivering smarter regulation and building the cost-efficient infrastructure to accommodate growing demand," he said.

"And the industry is ready to partner with governments to reinforce the foundations for global connectivity that are vital to modern life."

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