Mideast passenger demand set to surge
dubai — Passenger demand in the Middle East is expected to surge seven per cent in 2017, but the region’s carriers are poised to record a big drop in profit this year, the latest forecast from the International Air Transport Association said on Tuesday as it revised global aviation industry profitability outlook upwards.
Middle Eastern carriers are expected to post a profit of $400 million in 2017, down 63.6 per cent from $1.1 billion in 2016, which will amount to roughly $1.78 per passenger in the region, Iata said.
Across the globe, airlines are expected to report a $31.4 billion profit (up from the previously forecast $29.8 billion) on revenues of $743 billion — up from the previously forecast $736 billion.
The capacity growth of the Middle East carriers has been forecast at 6.9 per cent, slightly lower than the passenger growth.
“Trading conditions for the Middle Eastern carriers have sharply declined over the last six months,” Iata said in a statement.
In its latest forecast, the trade association of the world’s airlines said profitability and load factors are down significantly, as traffic and some business models have come under pressure.
“There is growing evidence that the ban on large electronic devices in the cabin and the uncertainty created around possible US travel bans is taking a toll on some key routes. Meanwhile the region is struggling with increased infrastructure taxes/charges and air traffic congestion,” it said.
Iata’s report however did not take into account the fall out the latest Gulf crisis and consequent travel ban imposed on Qatar by six Arab countries. Governments of the UAE, Saudi Arabia, Bahrain, Egypt, Yemen and Libya had stopped their airlines from flying to Qatar and banned Qatar Airways from flying across their air space, a disruptive development that will have a major impact on further hitting the profitability of the Middle Eastern airlines.
Globally, 2017 will be another solid year of performance for the airline industry. Demand for both the cargo and passenger business is stronger than expected.
“While revenues are increasing, earnings are being squeezed by rising fuel, labour and maintenance expenses. Airlines are still well in the black and delivering earnings above their cost of capital. But, compared to last year, there is a dip in profitability,” said Alexandre de Juniac, Iata’s director-general and CEO.
In 2017 airlines are expected to retain a net profit of $7.69 per passenger. That is down from $9.13 in 2016 and $10.08 in 2015. The average net profit margin stands at 4.2 per cent (down from 4.9 per cent in 2016).
While revenues are increasing, earnings are being squeezed by rising fuel, labour and maintenance expenses Alexandre de Juniac, Iata’s director-general and CEO
“Airlines are defining a new epoch in industry profitability. For a third year in a row we expect returns that are above the cost of capital. But, with earnings of $7.69 per passenger, there is not much buffer. That’s why airlines must remain vigilant against any cost increases, including from taxes, labor and infrastructure,” said de Juniac. While overall industry performance is strong, major regional variations remain. About half the industry profits are being generated in North America ($15.4 billion). Carriers in Europe and AsiaPacific will each add a $7.4 billion profit to the industry total. Latin America and Middle East carriers are expected to earn $800 million and $400 million respectively. Airlines in Africa are expected to post a $100 million loss.
Passenger demand is expected to grow by 7.4 per cent over the course of 2017. That is the same growth rate as 2016 and 2.3 percentage points higher than previously forecast.
Cargo demand is expected to grow by 7.5 per cent in 2017. That is more than double the 3.6 per cent growth realised in 2016 and 4.0 percentage points above the previous forecast for this year. Total cargo carried is expected to reach 58.2 million tonnes. This is higher than previously forecast (by 2.5 million tonnes) and 3.9 million tonnes over 2016 levels.
For 2016, Iata revised downwards its estimation of profits to $34.8 billion (from previously forecast $35.6 billion). Industry level profitability peaked at a historically high level in the first half of 2016 and has since been slowly declining. “This is the result of margins being squeezed by unit costs which are rising faster than unit revenues. Additionally, net post-tax profits took a hit from fuel hedging losses,” it said.
In 2017, airlines are expected to take delivery of some 1,850 new aircraft, around half of which will replace older and less fuel-efficient aircraft. This will expand the global commercial fleet by 3.8 per cent to 28,645, Iata added.