x Abu Dhabi, UAEMonday 22 January 2018

Region's airlines face $900m loss

The International Air Transport Association sees a slowdown, but travel agents are optimistic of tourists returning.

Air passengers arrive at Abu Dhabi Airport.
Air passengers arrive at Abu Dhabi Airport.

A mix of falling revenues, high fuel-hedging positions and overcapacity will see Middle East airlines lose US$900 million (Dh3.3 billion) this year, according to a revised forecast by the International Air Transport Association (IATA). Travel agents in the UAE, meanwhile, are expressing cautious optimism that travellers are slowly returning.

The speed and ferocity of the economic downturn in the final months of last year persuaded IATA to dramatically revise its forecasting yesterday. This year's $900m loss is more than four times IATA's prediction three months ago when it said its Middle East members would lose $200m. IATA also increased its estimate of last year's losses from $100m to $800m. The news comes as the IMF said last week the global economy could contract this year for the first time in 60 years.

"In the fourth quarter, the picture changed dramatically. Demand fell through the floor," said Lorne Riley, a spokesman for the Montreal-based industry association. The Middle East will be the only region with demand growth this year of 1.2 per cent, while new seating capacity will rise by 3.8 per cent. "The region continues to add capacity ahead of demand," IATA said in its report. Mr Riley said the impact of fuel contracts made in the run-up to the record oil prices of July last year left many airlines stuck with high prices after crude prices subsequently fell.

Regional carriers are also adding seats faster than they are filling them after many high-profile aircraft orders in the heydays of 2005-2008. "Industry wide, we don't differentiate between long-haul and short-haul airlines, but it's fair to say everyone is feeling the pinch," he noted. Meanwhile local travel agents say the situation in the Emirates, where airlines have launched promotions to stimulate the market, is more positive than the regional forecast.

"I can see an improvement in certain areas," said Premjit Bangara, the travel manager of Dubai-based Sharaf Travel. "Our business this month is better than last month." He estimated Sharaf Travel had seen growth of 4 per cent to 5 per cent in terms of overall bookings. Mr Bangara said corporate travellers were still eschewing first class but had begun to fly business class travel in greater numbers. Individual travellers, meanwhile, were also booking more tickets, perhaps due to current promotions.

He was also hopeful for the summer season, traditionally a heavy travel season in the Gulf when locals take families on holiday to Asia and Europe to escape the humid weather. "In the leisure segment, we don't really see locals stopping plans to take a holiday," Mr Bangara said. Yesterday's IATA report also gave a forecast of worldwide airline losses for this year. The December forecast of $2.5bn in losses has been revised to $4.7bn, while industry revenues are expected to fall by 12 per cent, or $62bn, to $467bn. "The state of the airline industry today is grim," said Giovanni Bisignani, the director general and chief executive of IATA.