x Abu Dhabi, UAEFriday 28 July 2017

Mena airline profit forecast cut

More than two dozen airlines in the MENA region will earn just $100m in profits this year due to high fuel prices and regional unrest, the industry's top body said.  

This year's volatile trading conditions are expected to have a negative impact on the profit margins of regional airlines. Denis Balibouse / Reuters
This year's volatile trading conditions are expected to have a negative impact on the profit margins of regional airlines. Denis Balibouse / Reuters

SINGAPORE // A group representing the airline industry cut profit expectations for Middle East and North African carriers for this year from US$700 million (Dh2.57 billion) down to $100m as high oil prices, natural disasters and political unrest take their toll.

The volatile trading conditions expected for this year will add new hardships for airlines in the Middle East and North Africa (Mena) region. They lost a collective $1bn between 2007 and 2009 during the global downturn and returned to profit only last year, according to the International Air Transport Association (IATA).

The group issued its highly watched economic forecast in Singapore yesterday during its annual gathering. "Political unrest in parts of the region is hurting demand," said Giovanni Bisignani, the IATA chief executive, adding that high fuel costs would weaken demand in key markets.

In March, IATA predicted that the $600bn global airline industry would earn $8.6bn of profits this year. But yesterday IATA reduced the earnings forecast by more than half, to $4bn, because of worsening business conditions for the industry. That reflects a razor-thin profit margin of 0.6 per cent for an industry that for the past decade has been on perpetual alert over disruptions including health scares, natural disasters and volatile economic cycles.

"That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance," said Mr Bisignani. The challenging conditions have led several Middle Eastern airlines, including Etihad Airways and Emirates Airline, to issue summer promotions to stimulate demand among Gulf residents.

"At the moment it is really tough," said Tim Clark, the president of Emirates Airline, the largest carrier in the Middle East.

"There is a distinct softening of the European markets. We have the difficulties in the regional markets [due to unrest], and there are issues with Asian markets, in particular with Japan, which has suffered quite a lot," Mr Clark said. "Taken together, there are difficulties out there, but I am hoping the summer will be strong."

Current conditions will make it difficult for Emirates to reproduce the $1.5bn of profit it made last year, he said.

Etihad Airways, which began flying in 2003 and aims to reach its financial break-even point this year, is "pushing hard to meet second-quarter objectives", said its chief executive, James Hogan. "We met our first-quarter targets, but Middle East traffic has been down."

The rising cost of jet fuel is the main worry for airlines, which have struggled to pass along the increased costs to passengers. IATA expects the average oil price for this year to be $110 per barrel, up from a forecast of $96 per barrel made in March. And for every $1 of increase in the average oil price, airlines around the world face an additional costs of $1.6bn, the industry body said.

Airlines in the Asia-Pacific region will enjoy the highest profitability this year, at $2.1bn, according to the forecast. North American carriers are on track to earn $1.2bn, followed by European airlines, with $500m of profits and $100m expected for Latin American airlines. African airlines are forecast to post a loss of $100m.

The large Gulf airlines will continue to win market share on long-haul markets by transiting passenger through their hubs, IATA said. But while the region's airlines will enjoy a 14.6 per cent rise in demand, that gain will fall short of the 15.5 per cent of capacity they are adding this year.

The annual IATA gathering brings together more than 700 executives representing 230 airlines accounting for 93 per cent of all scheduled international air traffic.

igale@thenational.ae