By Shane McGinley
Low yields on long-haul travel will lead to reduced profitabililty - latest report.
Airlines in the Middle East are forecast to lose $400m this year as low yields on long-haul travel leads to reduced profitability for carriers in the region, according to a report released on Thursday by the International Air Transport Association (IATA).
The IATA has halved its loss forecast for the industry this year to $2.8bn, compared to the $5.6bn loss forecast in December 2009. The improvement is largely driven by a much stronger recovery in demand seen by year-end gains that continued into the first months of 2010.
Carriers in the Middle East are expected to experience demand growth of 15.2 percent, however yields are expected to be low and the sector will be hit by a loss of $400m.
Globally, passenger demand, which fell by 2.9 percent in last year, is expected to grow by 5.6 percent this year. Cargo demand, which fell 11.1 percent last year, is likely to also see recovery and is forecast to rise 12 percent this year, the report said.
The IATA expects that the price of fuel will keep rising and the average oil price will rise from $75 to $79 per barrel, a $17 per barrel rise on the $62 average price in 2009. Fuel is expected to make up an average of 26 percent of operating costs this year.
“Revenues are half-way to recovery— $42bn below the 2008 peak and $43bn above the 2009 trough. Important fundamentals are moving in the right direction. Demand is improving. The industry has been wise in managing capacity. Prices are beginning to align with the costs—premium travel aside.
"We can be optimistic but with due caution. Important risks remain. Oil is a wild-card, over-capacity is still a danger, and costs must be kept under control—throughout the value chain and with labor,” said Giovanni Bisignani, IATA’s Director General and CEO.
Earlier this month, the IATA reported that January passenger demand in the Middle East was up 23 percent in the region, compared to a worldwide average rise of 6.4 percent.
Globally, a 1.2 percent increase in passenger capacity in January pushed load factors to 75.9 percent, compared 72.2 percent recorded for January 2009.
International cargo demand showed a 28.3 percent improvement with only a 3.7 percent increase in capacity, IATA said in a statement.
IATA hasn't done its homework properly, because Gulf is losing a reputed and reported $1m a day on its own, so with Etihad still deep in the red, the budget carriers bleeding and the regional economy still in the doldrums the losses are likely to be a whole lot more than the $400m stated here.