Friday 19 / April / 2024
Muscat: Airlines in the Middle East region are expected to post a $400 million profit (down from $1.1 billion in 2016) which is equal to $1.78 per passenger. Passenger demand is expected to grow by 7 per cent, slightly ahead expected capacity growth of 6.9 per cent, according to the International Air Transport Association (IATA).
Trading conditions for the Middle Eastern carriers have sharply declined over the last six months. 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,” said IATA in a statement.
The International Air Transport Association (IATA) revised its 2017 industry profitability outlook upwards. 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).
"This 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, labor 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).
"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 Asia-Pacific 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.
The demand environment has been much stronger than anticipated. Expectations for GDP growth in 2017 stand at 2.9 per cent. If realised this will be the strongest global economic performance since 2011.
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. 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.
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.
Air cargo typically grows strongly at the start of an economic upturn, as firms turn to rapid air transport to restock inventories – which is what we are seeing today. There are also retail trends, such as the switch to e-commerce and in pharmaceuticals – that are supporting air cargo growth.
Cost increases for fuel, labour and maintenance accelerated in the first quarter. Overall industry expenses are expected to rise to $687 billion, a $44 billion increase on 2016. Industry revenues are expected to increase to $743 billion, $38 billion more than 2016.
