Middle East carriers are expected to post a combined $1.6 billion profit in 2016, a record jump of over 14 per cent compared to the $1.4 billion reported for 2015.

According to data released by International Air Transport Association (Iata), capacity of Middle East airlines is forecast to grow at 12.2 per cent this year, outpacing an expected 11.2 per cent expansion of demand.

Efficient hubs continue to gain market share on connecting markets for the region’s major carriers, although local markets have been weakened by the impact of falling commodity revenues. Economic changes in the region’s oil economies are manifesting themselves in a spate of increases of charges and taxes which could dampen the region’s cost competitiveness.

Iata also revised its 2016 financial outlook for airlines around the world upwards to $39.4billion (from $36.3billion forecast in December 2015), an increase of 8.53 per cent. That is expected to be generated on revenues of $709 billion for an aggregate net profit margin of 5.6 per cent. 2016 is expected to be the fifth consecutive year of improving aggregate industry profits.

In 2015 airlines generated a global aggregate profit of $35.3 billion (re-stated from $33.0 billion estimated in December 2015). All regions are making a contribution to the $4.1 billion boost over 2015 profits with improved results; but there are stark regional differences in performance. Over half of the industry profits will be generated in North America ($22.9 billion) while African carriers are forecast to continue generating an overall loss (down $0.5 billion).

European airlines are expected to post a $7.5 billion profit in 2016 (up from $7.4 billion in 2015) while airlines in Asia-Pacific are expected to post a $7.8 billion profit in 2016, up from $7.2 billion in 2015. North American carriers continue to deliver the industry’s strongest financial performance with an expected net profit of $22.9 billion which is an improvement on the $21.5 billion reported for 2015 and African airlines are expected to post a $500 million loss in 2016, a slight improvement on the $700 million that the region’s carriers lost in 2015.

“Lower oil prices are certainly helping—though tempered by hedging and exchange rates. In fact, we are probably nearing the peak of the positive stimulus from lower prices. Performance, however, is being bolstered by the hard work of airlines. Load factors are at record levels. New value streams are increasing ancillary revenues. And joint ventures and other forms of cooperation are improving efficiency and increasing consumer choice while fostering robust competition. The result: consumers are getting a great deal and investors are finally beginning to see the rewards they deserve,” said Tony Tyler, Iata’s director general and CEO.

“Airlines are producing solid results even with some strong economic headwinds. It’s an impressive performance and the mood of the industry is generally optimistic,” said Tyler.

For the second year in a row and only the second time in the airline industry’s history, the return on invested capital (9.8 per cent) will exceed the cost of capital (estimated to be 6.8 per cent). This is the minimum expectation level for investors. The airline industry is beginning to generate profits that would be expected of any normal business.

Repaying accumulated debt will take several years of profitability to achieve. Airlines in North America and in some parts of Europe have seen the gearing of their balance sheets fall towards investment grade levels. But for much of the rest of the industry, it is a continuing challenge. - TradeArabia News Service