IATA increase mideast air industry profit forecast
Middle Eastern airlines are now expected to turn in a profit of $1.5 billion (Dh5.5 billion) this year compared to the previously projected $1.4 billion, the International Air Transport Association (IATA) said in a statement on Monday as the aviation body held its annual general meeting in Cape Town.
The aviation watchdog attributed the reasons for the improved profit forecast to strong passenger demand. “Passenger demand is expected to continue apace at 15 per cent, well ahead of the anticipated 12.6 per cent capacity expansion,” it said in a statement, adding that the region’s successful hubs continue to connect long-haul traffic, with particular strength in facilitating connectivity to emerging economies in Asia and Africa.
In fact, as per IATA’s estimates, all regions are expected to report a profit in 2013, with some being stronger than others.
“IATA has recently been quite conservative with its forecasting, making this quite credible. The most remarkable aspect of the forecast is that passenger numbers continue to run ahead of capacity — that indicates that the Gulf carriers are doing something right,” says analyst Andrew Charlton of Aviation Advocacy.
“The Gulf carriers are in a ‘sweet spot’ with new equipment, and new markets between emerging economies. But that they are in the sweet spot does not downplay that they recognize the value of their location and business model and that they are showing the world how to manage that,” he added.
However, an overall profitable picture may hide the potential for significant losses or bankruptcies among smaller and less competitive airlines in the region, or those facing low growth markets, argues Peter Morris, chief economist at aviation consultancy, Ascend. “The strength of the largest Gulf carrier — Emirates Etihad and Qatar Airways, continues to be supported by strong global network demand growth, as well as a controllable and improving cost base. But there are a number of airlines in the region that will continue to struggle, as they have neither critical mass nor can achieve the necessary cost efficiencies,” said Morris.
Supporting his statement, IATA said in its note that the profitability of many smaller airlines across the globe – without the scale economies, market diversification or niche markets — faces “greater challenges from high fuel prices and weak economic performance”.
Underlining factors that will lead to improved profits for the Middle Eastern carriers, Morris said: “Through network growth they are achieving both aircraft and business efficiencies, added to which their forward aircraft order books ensure they will benefit directly from the significant technical improvements in the next generation of aircraft deliveries.
“This is a particularly strong point when compared with their competitors both within the region and outside.”
Globally, meanwhile, airlines are expected to post profits of $12.7 billion this year, as per the IATA’s revised forecast, marking an improvement on a March forecast of $10.6 billion. The airlines industry made $7.6 billion in profits in 2012. IATA said that the revised forecast would make 2013 the industry’s “third-best year since 2001”.
“Generating even small profits with oil prices at $108/barrel and a weak economic outlook is a major achievement. Improved performance is what’s keeping airlines in the black. Airlines are putting more people in seats,” Tony Tyler, IATA’s Director General and CEO, said in a statement, adding that for the first time in history, the industry load factor is expected to average above 80 per cent for the year.
“And with ancillary revenues topping five per cent, it is clear that airlines have found new ways to add value to the travel experience and to shore-up the bottom line.”