By Andy Sambidge
Profits expected to rise further to $2.4bn in 2014, says International Air Transport Association
Middle East airlines are expected to return a net profit of $1.6 billion in 2013, increasing to $2.4 billion in 2014, according to a new report by the International Air Transport Association (IATA).
The aviation authority said margins will also continue to improve in the region — from 3.8 percent in 2013 to 4.7 percent in 2014.
IATA said the improvements are being driven by the region’s hubs, particularly in the Gulf, which continue to expand in support of growing long-haul connectivity.
"Strong oil revenues — as oil prices stay high — continue to support travel generated by domestic activity and the development of the tourist industry. The Syrian crisis has not impacted traffic beyond its borders," IATA said in a statement.
Globally, IATA announced an upward revision to its industry financial outlook. For 2013 airlines are expected to return a global net profit of $12.9 billion. This is expected to improve to a net profit of $19.7 billion in 2014.
Both are improvements on the September forecast which anticipated an industry net profit of $11.7 billion in 2013 increasing to $16.4 billion in 2014.
IATA said the upward revision reflects lower jet fuel prices over the forecast period as well as improvements to the industry’s structure and efficiency already visible in quarterly results this year. Passenger markets continue to outperform the cargo business which remains stagnant both on volumes and revenues.
IATA said it expects 2014 to be a second consecutive year of strengthening profitability - beginning from 2012 when airlines posted a net profit of $7.4 billion.
Industry net profit margins, however, remain weak at 1.1 percent of revenues in 2012, 1.8 percent in 2013 and 2.6 percent in 2014.
The anticipated $19.7 billion profit in 2014 would come on projected revenues of $743 billion. While this would be the largest absolute profit for the airline industry— outstripping the $19.2 billion net profit that the industry returned in 2010 - 2010 revenues were higher at $579 billion.
Tony Tyler, IATA’s director general and CEO, said: "Overall, the industry’s fortunes are moving in the right direction. Jet fuel prices remain high, but below their 2012 peak. Passenger demand is expanding in the 5-6 percent range - in line with the historical trend. Efficiencies gained through mergers and joint ventures are delivering value to both passengers and shareholders. And product innovations are growing ancillary revenues."
He added: "We must temper our optimism with an appropriate dose of caution. It’s a tough environment in which to run an airline. Competition is intense and yields are deteriorating. Cargo volumes haven’t grown since 2010 and cargo revenues are back at 2007 levels. The passenger business is expanding more robustly. Some airlines will out-perform our estimates and others will under-perform. But, on average, airlines will only make a net profit of about $5.94 per passenger in 2014."