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Wed 20 Mar 2013 06:13 PM

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MidEast airlines set to post $1.4bn profit in 2013

IATA increases forecast as carriers continue growth plan; $900m profit seen last year

MidEast airlines set to post $1.4bn profit in 2013
airline generic, aeroplane

Middle Eastern airlines are expected to post a profit of $1.4bn in 2013, up from the $1.1bn previously forecast, the International Air Transport Association (IATA) said in Wednesday.

The forecast is also stronger than the $900m profit recorded by the region's carriers in 2012.

IATA said the growing role of the region’s airlines in providing connectivity to developing markets was reflected in strong traffic growth.

The region’s airlines are expected to add 12.8 percent in capacity in 2013 and this will be outpaced by demand growth of 13.7 percent.

The region’s carriers rank third in terms of operating profitability with an Earnings Before Interest and Taxes (EBIT) margin of 3.4 percent, after Asia-Pacific (5.3 percent) and North America (4.1 percent).

Globally, IATA announced a modest improvement in its outlook for the 2013 financial performance of the airline industry primarily based on stronger revenues.

IATA said it now expects airlines to produce a combined net post-tax profit margin of 1.6 percent (up from the previously forecast 1.3 percent) with a net post-tax profit of $10.6bn, up from the previously projected $8.4bn.

IATA said stronger revenues ($671bn, up $12bn from the December outlook) are the main driver of the slightly improved financial performance.

Cargo demand is expected to grow by 2.7 percent and cargo yields are expected to be flat. Passenger demand is forecast to grow by 5.4 percent (up from the 4.5 percent previously expected) and yields are expected to grow by 0.4 percent.

Tony Tyler, IATA’s director general and CEO, said: “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.”

IATA noted that considerable risks remain which could derail recovery. The outlook is based on evidence of growing business confidence. But the controversy over the draconian bailout proposal for Cypriot financial institutions is a clear indicator that the Eurozone crisis is not over and could take a turn for the worse.

“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," said Tyler.

"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,” he added.

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