x Abu Dhabi, UAEThursday 27 July 2017

Dire prediction for world airlines as fuel rises bite

Global airline profits fall by two thirds in the second quarter of the year

Airlines have been battling with high fuel costs.
Airlines have been battling with high fuel costs.

Global airlines, including those from the Middle East, are expected to show a dramatic fall in profits for the second quarter of the year.

The forecast comes as carriers continue to be hit by rising jet fuel prices, according to the International Air Transport Association (IATA). Early figures from a sample of 16 airlines show they will collectively report a decline of nearly US$2 billion (Dh7.34bn) in profits to US$1bn, compared with the same quarter last year, IATA said yesterday.

"Airlines everywhere have been battling with high fuel costs," said Samir Murad, an analyst at National Bank of Kuwait. "The Middle East airlines pay levels similar to the global rate, so they are affected in the same manner."

But the dire prediction from IATA on global and Middle East airlines seems out of kilter with previous results from the UAE's two biggest carriers, Emirates Airline and Etihad Airways.

Emirates' profits soared 52 per cent to Dh5.4bn in the 12 months ending in March as it bucked global economic gloom, high fuel prices and regional unrest.

Dubai's long-haul carrier reported a 14.5 per cent rise in passenger traffic, while numbers at Dubai International Airport overall are forecast to increase by 7.2 per cent a year until 2020.

However, North American, Asian and Latin American airlines are all showing declines in profits, while European carriers are reporting slight increases - due to particularly low figures last year, part of which was as a result of the Icelandic ash cloud disruption.

Only last week, IATA claimed Middle Eastern airlines were falling behind their global peers in terms of customer demand.

"For the second consecutive month, both demand and capacity increases by Middle East carriers have fallen behind those of Europe and Latin America," the industry body, based in Geneva, said on Friday.

Air Arabia,the Middle East's biggest low-cost airline, yesterday reported second-quarter profit rose to Dh49.6m from Dh48.7m a year earlier. Jezeera Airways will announce figures next week.

"We are about to see how Middle East airlines fare," said Mr Murad. "This will give an indication on how others have done."

Although global passenger traffic is increasing at a rate of between 4 and 5 per cent this year, IATA said airlines' profits were being hurt by rising fuel costs that rose beyond $130 a barrel last month.

Airline passenger increases are also being outpaced by capacity, which means occupancy levels on planes around the world are 1 per cent lower than the highs of last year.

The trade body said share prices were down about 15 per cent this year.

"We all know the profits will be affected by rising fuel cost prices, whether the airlines can pass on the cost increases to customers is the question," said Mr Murad.

Despite that, Etihad is on track to break even this year after it recorded its first ever operating profit in the first quarter, on the back of soaring revenues.

 

rjones@thenational.ae