Mideast carriers’ profits to grow over 14%

 03 Jun 2016 - 9:56

Mideast carriers’ profits to grow over 14%
Stephen Kavanagh, CEO of Aer Lingus (centre) and Andres Conesa, CEO of Aeromexico and Chairman of the IATA Board Governors (right), listen to Tony Tyler, Director General and CEO of IATA, during the opening session of the association’s annual general meeting in Dublin, yesterday.

 

By Mohammad Shoeb

DOHA: Middle East carriers, including three major airlines of the region — Qatar Airways, Emirates and Etihad Airways — are expected to post a combined $1.6bn profit in 2016, witnessing a double-digit growth of over 14 percent compared to $1.4bn reported in 2015. According to the latest data released by International Air Transport Association (IATA), which represents some 264 airlines comprising 83 percent of global air traffic, the capacity of Middle East airlines is also forecast to grow at 12.2 percent, outpacing an expected 11.2 percent expansion of demand.
Efficient hubs, such as Doha, Dubai and Abu Dhabi of the region, 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. The IATA revised its 2016 financial outlook for global air transport industry profits upwards to $39.4bn (from $36.3bn forecast in December 2015). That is expected to be generated on revenues of $709bn for an aggregate net profit margin of 5.6 percent. 2016 is expected to be the fifth consecutive year of improving aggregate industry profits.
In 2015 airlines generated a global aggregate profit of $35.3bn (re-stated from $33bn estimated in December 2015). All regions are making a contribution to the $4.1bn 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 ($22.9bn) while African carriers are forecast to continue generating an overall loss of $500m.
European airlines are expected to post a $7.5bn profit in 2016, marginally (1.35 percent) up from $7.4bn in 2015. While Airlines in Asia-Pacific region are expected to post a $7.8bn profit in 2016, up 8.33 percent compared to $7.2bn 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.”
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 percent) will exceed the cost of capital (estimated to be 6.8 percent). 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.

The Peninsula