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Middle East Airlines: From Growth Leaders to Facing Difficult Times Ahead?
Published: 18/12/2011 by d3ayat Team
The airlines industry has good news and bad news. Good for the passengers and bad for the industry per se. The Good first: Passengers will see airfares falling next year as oil prices dwindle and as weaker markets put downward pressure on airfares.
The bad news: The global airline profitability for 2012 is expected to be sharply lower than what was previously forecasted. The IATA (International Air Transport Association) in its forecast has slashed the 2012 profit by 29% from USD4.9 billion, as forecast in Sept. 2011, to USD3.5 billion; the net profit margin now being 0.6%, down from the previous forecast of 1.2%.
Experts fear the Eurozone banking crisis could cause heavy losses for the global aviation sector next year.
The international trade body has also slashed its 2011 profit forecast for Middle East carriers by 50% in view of tighter margins on long-haul routes connecting Middle Eastern hubs due to high fuel costs.
Speaking to Gulf News, Brian Pearce, IATA’s Chief Economist said: “The Middle Eastern carriers are moving into a more difficult and challenging environment. Oil prices are still relatively high, that means fares have to be high. And that's affecting the price sensitive segment.”
Fuel prices are expected to account for 32 per cent of airlines' costs in 2012, while the same accounted for 31 per cent this year.
Pearce’s statement comes on the heels of an IATA report in which the IATA cut its 2011 profit forecast for Middle East carriers by half: from $800 to $400m. The forecast cited high fuel costs as the cause of the downgrade.
A worsening euro-zone crisis into a full-blown banking crisis and the failure of governments to resolve it can lead to the aviation industry facing losses of over USD8 billion – the largest since the 2008 financial crisis.
Interestingly, Middle East airlines were seen as growth leaders in the month of October this year. According to the IATA, the region’s carriers reported the strongest growth, leading the world for growth in demand with a 7.7 per cent increase over the same month last year.
