Carriers across the Middle East are having a hard time turning rising demand into profits.
Region's airline losses to grow
Airlines across the Middle East will lose US$100 million (Dh367.2m) more than forecast just three months ago, according to the latest data from the International Air Transport Association (IATA), the global aviation body. Its comments came even though the outlook for carriers in the rest of the world seems to be improving.
Middle Eastern airlines will make losses of $400m this year against the $300m forecast in December, the IATA said. It said carriers in the region would find it hard to raise ticket prices in the face of growing competition. "Middle East carriers are expected to experience demand growth of 15.2 per cent in 2010, but - low yields in long-haul markets connected over Middle East hubs is a burden on profitability." These expected losses would follow $1.2 billion in losses for Middle East airlines last year.
However, the IATA halved its loss forecast for this year for airlines worldwide to $2.8bn, compared with a $5.6bn loss it forecast three months ago, on the back of economic growth in Asia. The expected regional losses underscore the precarious nature of Middle East airlines, which are adding aeroplanes and new routes to cater for rising demand but are struggling to translate this into profits amid the worst conditions for airlines in 50 years.
"The yields continue to be low and this is expected to last at least until April or May," said Zubair Musliyarakath, the Abu Dhabi manager of Orient Travel. "With fares from Dubai to Mumbai, for example, there is not much difference in the prices from full-service legacy airlines and low-cost carriers." However, airlines based in the region, and those operating flights here, said that despite the tough conditions, there were promising signs.
"All of our indicators so far in the first quarter are good and we are seeing definite signs of an upturn in passenger travel and a return to stronger trading conditions," said James Hogan, the chief executive of Etihad Airways, which expects to break even next year. Jose Thachil, the Gulf marketing manager for Singapore Airlines, agreed, and said the days of airlines waging price wars to win over scarce passengers were probably over.
"Last year, when the industry was going through tough times, everybody probably overreacted and there was a price war. I don't really foresee a similar situation happening this year," he said. "I think the pricing will be more sensible." Airline capacity growth in the Middle East is among the fastest worldwide as the big Gulf airlines, Etihad, Emirates Airline and Qatar Airways, take delivery of billions of dollars of new long-haul aircraft as they seek to make the Gulf a major transit point for travel between the East and the West.
This week, Qatar Airways said it would launch new services to Brazil and Argentina in the next few months, Etihad said it would increase its links with Australia through its code-share with Qantas, and Emirates announced new flights to Senegal and extra frequencies to London Heathrow. To complicate matters for these airlines, the relatively buoyant economies of the Middle East have led to more foreign carriers increasing their services here.
The worldwide improvements are being driven by economic recovery in the emerging markets of Asia-Pacific and Latin America, where airlines posted gains in international passenger demand of 6.5 per cent and 11 per cent respectively in January, the IATA said. "The stark contrast between profitability among Asian and Latin American carriers while losses continue to plague the rest of the industry clearly demonstrates the fact that airlines have not been able to develop into global businesses," said Giovanni Bisignani, the head of the IATA.
The association said the Asia-Pacific region would see airlines turn a $2.7bn loss last year into a $900m profit this year due to the economic recovery being driven by China, with cargo markets leading the way. For the second year in a row, Latin American airlines would post a profit of $800m. But European airlines would post a $2.2bn loss, and North American carriers would follow with $1.8bn. African airlines were expected to suffer $100m of losses this year, half that of last year, the IATA said.