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Fri 9 Dec 2016 12:52 AM

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MidEast airlines forecast to see $600m slump in profits in 2017

IATA also says regional carriers will see average profit per passenger of $1.56 next year, much lower than global average

MidEast airlines forecast to see $600m slump in profits in 2017

Middle Eastern airlines are forecast to see their profits slump by $600 million to $300 million in 2017, according to the International Air Transport Association (IATA).

IATA said regional carriers will report a net margin of 0.5 percent and an average profit per passenger of $1.56 next year - both much lower than the global average.

"Threats are emerging to the success story of the Gulf carriers, including increases in airport charges across the Gulf states and growing air traffic management delays," the association said in a statement.

It added that average yields for the region’s carriers are low but unit costs are even lower, partly driven by the strong capacity expansion, forecast at 10.1 percent this year, ahead of expected demand growth of 9 percent.

Globally, IATA announced that it expects the airline industry to make a net profit in 2017 of $29.8 billion. On forecast total revenues of $736 billion, that represents a 4.1 percent net profit margin.

This will be the third consecutive year in which airlines will make a return on invested capital (7.9 percent) which is above the weighted average cost of capital (6.9 percent), IATA said.

IATA also revised slightly downward its outlook for 2016 airline industry profitability to $35.6 billion - from the June projection of $39.4 billion - owing to slower global GDP growth and rising costs.

However, this will still be the highest absolute profit generated by the airline industry and the highest net profit margin (5.1 percent).

"Airlines continue to deliver strong results. This year we expect a record net profit of $35.6 billion. Even though conditions in 2017 will be more difficult with rising oil prices, we see the industry earning $29.8 billion. That’s a very soft landing and safely in profitable territory," said Alexandre de Juniac, IATA’s director general and CEO.

He said 2017 is expected to be the eighth year in a row of aggregate airline profitability, illustrating the resilience to shocks that have been built into the industry structure.

On average, airlines will retain $7.54 for every passenger carried.

Expected higher oil prices will have the biggest impact on the outlook for 2017. In 2016 oil prices averaged $44.6/barrel (Brent) and this is forecast to increase to $55 in 2017.

Fuel is expected to account for 18.7 percent of the industry’s cost structure in 2017, which is significantly below the recent peak of 33.2 percent in 2012-2013.

IATA also said there is some optimism over the prospects for the cargo business in 2017. The break in falling yields and a moderate uptick in demand (3.5 percent) will see cargo industry volumes reach a record high of 55.7 million tonnes, up from 53.9 million tonnes in 2016.

Industry revenues are expected to rise slightly to $49.4 billion but trading conditions will remain challenging.

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