UAE airlines’ profits may decline this year: IATA

In this May 4, 2014 file photo, an Etihad Airways plane prepares to land in Abu Dhabi Airport, United Arab Emirates. (AP)
Updated 15 March 2017
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UAE airlines’ profits may decline this year: IATA

ABU DHABI: The profitability of airlines based in the UAE, the Middle East’s main aviation hub, is likely to fall this year amid limited growth in demand, the head of the International Air Transport Association (IATA) said on Tuesday.
“The UAE carriers will have a year that is probably below 2016,” Alexandre de Juniac, director-general and chief executive of the IATA, told reporters in Abu Dhabi.
Low-cost carriers that offer long-haul services, as seen in Europe, could also soon start to take hold in the region, he said.
IATA said in December that Middle East airlines are likely to see profits fall to $300 million in 2017 from $900 million last year in part due to high capacity and limited demand growth, but did not give specifics on UAE carriers at that time.
Half-year profit fell 75 percent at Emirates and Tim Clark, the airline’s president, said last week that while yield declines had halted it was still a tough year.
Air Arabia and flydubai reported lower full-year profit for 2016, while Etihad has not yet reported its results but has said it is reviewing its business.
Airlines in the Gulf benefited for years from high oil prices that spurred government spending and regional growth. But demand has softened and travel budgets have tightened after more than two years of depressed oil prices, exposure to weaker markets and currency fluctuations.
Emirates and Etihad are both reviewing their workforces, while Emirates has agreed with Airbus to delay the delivery of 12 A380 jets over the next two years.
Both airlines have hundreds of aircraft on order from Airbus and Boeing and neither has signaled further delays to deliveries.
De Juniac told Reuters that airlines across the world need to “manage their assets cleverly.”
“There is a lot of capacity so it explains why the yield is declining and many companies are suffering,” he said, but added that he “would not advise” airlines on how to define their capacity.
The growth of low cost airlines that fly long haul, like Norwegian Air Shuttle, is expected to continue to pressure established transatlantic carriers as these newcomers expand using longer-range single-aisle aircraft to fly between smaller, cheaper local airports.
Growth of low cost, long haul is “starting to accelerate” in Europe and Asia and is likely to eventually develop in other markets such as the Middle East, de Juniac said.


Another surprise fall in UK inflation muddies Bank of England rates message

Updated 4 min 41 sec ago
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Another surprise fall in UK inflation muddies Bank of England rates message

LONDON: British inflation fell unexpectedly in April, according to figures on Wednesday that added to doubts about when the Bank of England will raise interest rates again and pushed sterling to its lowest level against the dollar this year.
Consumer price inflation cooled to 2.4 percent last month, its weakest increase since March 2017, and down from 2.5 percent this March.
The figure was below economists’ average expectation in a Reuters poll for it to hold steady at 2.5 percent and represented the second surprise fall in a row after a drop in March’s figures. “It’s a conundrum for the Bank of England which has struggled to read the direction of price changes recently,” Ed Monk, associate director for personal investing at fund manager Fidelity International, said.
“With inflation trending lower, it only makes it harder for the Bank of England to raise rates.” Investors were now pricing in a one-in-three chance of a BoE rate hike in August — the next time it updates its forecasts on the economy — down from 50/50 before Tuesday’s data.
High inflation, caused by the pound’s drop after the 2016 Brexit vote, squeezed British consumers through last year, and although it has receded from its December peak of 3.1 percent, the BoE is keeping a close eye on price pressures.
PIPELINE PRESSURE
Wednesday’s data pointed to some signs of inflation pressure still in the pipeline. Prices of goods leaving British factories increased at a faster rate than expected last month. And while consumer price inflation cooled again, the timing of the Easter holidays and their impact on air fare prices was a big contributor.
On Tuesday Bank of England Governor Mark Carney cited a new sugar tax on soft drinks, as well as higher utility bills and petrol prices, as reasons why inflation “probably tips up a bit” in the coming months before resuming a decline. The ONS said soft drink prices increased sharply over the last couple of months but the overall impact on inflation was minimal.
The latest data on prices in British factories, which eventually feed through onto the high street, were stronger than anticipated. Manufacturers increased the prices they charged by 2.7 percent year-on-year, matching March’s increase. Economists had expected a fall to 2.3 percent. Among manufacturers, the cost of raw materials — many of them imported such as oil — was 5.3 percent higher than in April 2017, up sharply from an increase of 4.4 percent in March and suggesting a long run of weakening price growth has ended.
A surprise drop in consumer price inflation in March, along weak economic growth figures for early 2018, had called into question whether the BoE would raise interest rates more than once before the end of the year.
Earlier this month it refrained from an interest rate hike that had at one point been widely expected. The BoE’s latest forecasts show inflation dropping to 2.1 percent in a year’s time, and returning to its 2.0 percent target a year later — but only if interest rates rise by 25 basis points about three times over three years.
The latest Reuters poll of economists suggests the BoE is most likely to raise interest rates at its August meeting.