Tuesday 29 July 2014
 
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OIL REVENUES WEIGH

Mideast airlines 'set to rake in $2.4bn in profits'

Geneva, December 13, 2013

Middle East airlines will return a net profit of $1.6 billion in 2013, increasing to $2.4 billion in 2014, while the region’s hubs continue to expand in support of growing long-haul connectivity, a report said.

EBIT (earnings before interest and tax) margins also continue to improve from 3.8 per cent in 2013 to 4.7 per cent in 2014, added the latest Airline Financial Outook released by International Air Transport Association (Iata).

Strong oil revenues continue to support travel in the region generated by domestic activity and the development of the tourist industry, the report said.

The Syrian crisis has not impacted traffic beyond its borders, according to the Iata report.

The outlook for African airlines is unchanged from September with a $100 million loss in 2013 switching to a $100 million profit in 2014.

It is the weakest financial performance of any region with an EBIT margin of -0.5 per cent in 2013 improving to 0.7 per cent in 2014. The region’s carriers face stiff competition on intercontinental routes while intra-African connectivity is underdeveloped as a result of market access restrictions.

Additionally, high operating costs, heavy taxation and infrastructure deficiencies hamper the region’s airlines. Improving safety remains the top priority for the region. Governments have agreed, through the Abuja declaration, to aim for world class safety by 2015.

Global outlook

Globally, airlines are expected to return a global net profit of $12.9 billion in 2013. This is expected to improve to a net profit of $19.7 billion in 2014. Both are improvements on the September forecast which anticipated an industry net profit of $11.7 billion in 2013 increasing to $16.4 billion in 2014, the Iata report said.

The upward revision reflects lower jet fuel prices over the forecast period as well as improvements to the industry’s structure and efficiency already visible in quarterly results this year. Passenger markets continue to outperform the cargo business which remains stagnant both on volumes and revenues.

Iata expects 2014 to be a second consecutive year of strengthening profitability (beginning from 2012 when airlines posted a net profit of $7.4 billion). Industry net profit margins, however, remain weak at 1.1 per cent of revenues in 2012, 1.8 per cent in 2013 and 2.6 per cent in 2014. Within this aggregate forecast for the entire industry, performance of individual airlines and regions will vary considerably, the report said.

The anticipated $19.7 billion profit in 2014 would come on projected revenues of $743 billion. While this would be the largest absolute profit for the airline industry—outstripping the $19.2 billion net profit that the industry returned in 2010 - it is important to note that 2010 revenues were $579 billion. The net profit margin in 2010 was 3.3 per cent, some 0.7 percentage points higher than the 2.6 per cent expected for 2014.

"Overall, the industry’s fortunes are moving in the right direction. Jet fuel prices remain high, but below their 2012 peak. Passenger demand is expanding in the 5-6 per cent range—in line with the historical trend. Efficiencies gained through mergers and joint ventures are delivering value to both passengers and shareholders. And product innovations are growing ancillary revenues," said Tony Tyler, Iata’s director general and CEO.

"We must temper our optimism with an appropriate dose of caution. It’s a tough environment in which to run an airline. Competition is intense and yields are deteriorating.

“Cargo volumes haven’t grown since 2010 and cargo revenues are back at 2007 levels.  The passenger business is expanding more robustly. Some airlines will out-perform our estimates and others will under-perform. But, on average, airlines will only make a net profit of about $5.94 per passenger in 2014," said Tyler.

"Airlines have shown that they can rise to the challenges of a difficult trading environment. That’s good news for economies and consumers that depend on global connectivity,” Tyler continued.

“But I am increasingly concerned that governments have not fully appreciated the critical role that aviation plays in our connected world. Regulatory and tax burdens incrementally, but significantly, rise year-on-year. Some governments even appear to be backtracking on deregulation and are micro-managing in areas such as passenger rights," said Tyler.

"In 2014 we will mark 100 years since the first scheduled commercial air service was inaugurated. Over aviation’s first century, our world has changed for the better in many ways. The industry evolved into a powerful draft horse connecting people and growing economies. Governments should keep this in mind when developing policies or deciding taxes. Supporting aviation’s enabling capabilities pays big economic dividends," Tyler concluded. – TradeArabia News Service




Tags: Iata | Airlines | Syria crisis |

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