Middle East airlines forecast to post 63.6% drop in 2017 profit – IATA

Airlines in the Middle East are expected to post a profit of $400m in 2017, down 63.6 per cent from $1.1bn in 2016, according to the latest forecast from the International Air Transport Association (IATA).

The profit figure will amount to roughly $1.78 per passenger in the region, IATA said.

Passenger demand is expected to grow by 7 per cent, slightly ahead of expected capacity growth at 6.9 per cent.

“Trading conditions for the Middle Eastern carriers have sharply declined over the last six months,” IATA said in a statement.

“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.”

The US laptop ban, which came into effect in March, applies to passengers flying from 10 Middle East and African airports including Amman, Cairo, Kuwait City, Doha, Dubai, Istanbul, Abu Dhabi, Casablanca, Riyadh and Jeddah.

Following the ban, Dubai-based Emirates also reduced its services on five US routes.

Also read: IATA CEO says US, UK electronics bans creating ‘severe’ commercial distortions

“The region is also struggling with increased infrastructure taxes/charges and air traffic congestion,” the IATA said.

Worldwide, the IATA revised its 2017 industry profitability outlook upwards, stating that airlines are expected to report a $31.4bn profit (up from the previously forecast $29.8bn) on revenues of $743bn (up from the previously forecast $736bn).

Passenger demand is expected to grow by 7.4 per cent over the course of 2017 – the same growth rate as 2016 and 2.3 percentage points higher than previously forecast.

“Stronger demand translates into an additional 275 million passengers (over 2016), which will bring the total number of passengers expected to fly this year to 4.1 billion. If achieved, this would be the largest year-on-year growth in absolute passenger numbers ever recorded,” IATA said.

“What is most important for the industry financial performance is that this surge in expected demand takes traffic growth ahead of planned capacity growth. As a result, the average passenger load factor is expected to reach 80.6 per cent (slightly ahead of the 80.3 per cent achieved in 2016), helping to boost unit revenues.”

Cargo demand is also anticipated to rise by 7.5 per cent in 2017, compred to 3.6 per cent growth in 2016 and 4 percentage points above the previous forecast for this year. Total cargo carried is expected to reach 58.2 million tonnes.

“This will be another solid year of performance for the airline industry,” said Alexandre de Juniac, IATA’s director general and CEO.

“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,” he added.

In 2017 airlines are expected to retain a net profit of $7.69 per passenger, down from $9.13 in 2016 and $10.08 in 2015.

“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, labour and infrastructure,” said de Juniac.

Cost increases for fuel, labour and maintenance accelerated in the first quarter of this year. Overall industry expenses are expected to rise to $687bn, indicating an increase of $44bn on 2016. Meanwhile industry revenues are expected to increase to $743bn, $38bn more than 2016.

“Air transport is the business of freedom,” said de Juniac.

“The safe and efficient global movement of goods and people is a positive force in our world. Aviation’s success betters peoples’ lives by creating economic opportunity and supporting global understanding. We must stand firm in the face of any rhetoric that would put limits on aviation’s future success,” he added.

KEY AVIATION FIGURES

* The 2017 average return airfare is expected to be $353 (2016 dollars), which is 64 per cent below 1996 levels after adjusting for inflation.

* Average air freight rates in 2017 are expected to be $1.51/kg (2016 dollars) which is a 69 per cent fall on 1996 levels.

* Air cargo accounts for around 35 per cent of the total value of goods traded globally.

* The number of unique city pairs served by aviation is forecast to grow to 19,699 in 2017, a 99 per cent increase on 1996.

* The global spend on tourism enabled by air transport is expected to grow by 5.2 per cent in 2017 to $685bn.

* Airlines are expected to take delivery of some 1,850 new aircraft in 2017, 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.