Profit forecast for Middle East carriers revised upward for 2013
- Middle East: Wednesday, March 20 - 2013 at 14:30
The growing role of the region's airlines in providing connectivity to developing markets is reflected in strong traffic growth, according to the International Air Transport Association (IATA).
Throughout the course of this year, the region's airlines are expected to add 12.8% in capacity and this will be outpaced by demand growth of 13.7%, IATA noted. The region's carriers rank third in terms of operating profitability with an Earnings Before Interest and Taxes (EBIT) margin of 3.4%, after Asia-Pacific (5.3%) and North America (4.1%).
Looking at the industry worldwide, IATA adjusted its outlook slightly upward based on stronger revenues. IATA now expects airlines globally to produce a combined net post-tax profit margin of 1.6% (up from the previously forecast 1.3%) with a net post-tax profit of $10.6bn (up from the previously projected $8.4bn).
"Industry profits are taking a small step in the right direction. Against a backdrop of improved optimism for global economic prospects passenger demand has been strong and cargo markets are starting to grow again. The economic optimism is also pushing fuel prices higher. We are seeing a $12bn improvement in revenue, and a $9-10bn increase in costs—most of which is related to fuel," said Tony Tyler, IATA's Director General and CEO.
Asian-Pacific airlines are forecast to deliver the largest absolute contribution to industry performance with a $4.2bn net profit expected for 2013 (up from $3.2bn previously projected and from the $3.9bn reported for 2012), IATA noted. Asian carriers comprise about 40% of the air cargo market and will be the biggest beneficiaries of the expected upturn in cargo demand.
However, IATA also warned that considerable risks remain which could derail recovery. "European Central Bank commitments with respect to the Eurozone crisis and the slow economic recovery in the US should be pointing us towards a durable, if weak, upswing. But we have had two false starts already. Improving conditions in early 2011 and 2012 disintegrated as the Eurozone crisis intensified. And it could happen again. The impact of the unfolding situation in Cyprus is a risk factor that cannot be ignored," said Tyler.
IATA also cautioned that fuel prices are increasing, noting that jet fuel is now expected to average $130/barrel for the year (up from $124.3/barrel projected in December). And the fuel bill will grow to $216bn, a $6bn increase over December's expectations.
"The improvements in industry profitability are encouraging, but they must be kept in perspective," Tyler said. "We are projecting that airlines will make a net profit of $10.6bn on $671bn in industry revenues. By comparison last year Nestle, a single company, made over $11.5bn in profit on revenues of about $100bn. Chronic anemic profitability is characteristic across most of the aviation value chain when compared to other sectors. It will require more than improving economic conditions to fix. Neither the challenges nor the benefits of doing so should be underestimated."
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