Middle East airline profits to roar back in 2018
Middle East airline profits to roar back in 2018
After a year in which Middle East carriers were hit by the low oil price, US travel restrictions and geopolitical uncertainty, profits next year should double from $300 million to $600 million, said IATA in its outlook for the coming year.
While many problems remain, regional airlines had cut costs and made efficiencies to cope with the tougher trading environment, the report suggested.
IATA said: “Demand in 2018 is expected to grow by 7 percent, outpacing announced capacity expansion of 4.9 percent (the slowest growth since 2002). The region’s carriers face challenges to their business models, (including) competition from the new “super connector” in Istanbul. Despite the challenges, there is “positive momentum heading into 2018,” said the trade body
This year’s profit forecast for the region’s airlines has been revised downwards from the $400 million profit IATA forecast in June, which was a 63.6 percent drop from the $1.1 billion the airlines made in 2016.
IATA’s global summary predicted the airlines industry as a whole was expected to see its net profit rise to $38.4 billion in 2018, marking an improvement from the $34.5 billion expected this year.
The aviation watchdog said the 2017 forecast had been revised up from the $31.4 billion forecast in June.
IATA expects an improvement in net margin to 4.7 percent (up from 4.6 percent in 2017), with global revenues at $824 billion, up 9.4 percent on 2017, a 6 percent rise in passenger numbers to 4.3 billion. It expects cargo volumes to rise to 62.5 million tons, up 4.5 percent on 2017.
Also, record load factors are forecast for 2018 at around 81.4 percent, said the report.
IATA said strong demand, efficiencies and reduced interest payments would help airlines improve profitability, despite rising costs. 2018 was expected to be the fourth consecutive year of sustainable profits with a return on invested capital of 9.4 percent, exceeding the industry’s average cost of capital of 7.4 percent, it said.
Alexandre de Juniac, IATA’s director general and CEO, said: “These are good times for the global air transport industry. More people than ever are traveling. The demand for air cargo is at its strongest level in over a decade. Employment is growing. More routes are being opened. Airlines are achieving sustainable levels of profitability. It’s still, however, a tough business, and we are being challenged on the cost front by rising fuel, labor and infrastructure expenses.”
Oil price inflation was a big factor with the black stuff expected to average $60 per barrel for Brent in 2018 against $54.20 per barrel in 2017. Jet fuel prices are expected to rise even more quickly to $73.8 per barrel — a 12.5 percent increase on 2017.
Airlines with low levels of hedging (in the US and China for example) were likely to feel the impact of these increases more immediately than those with higher average hedging ratios (Europe). The fuel bill is expected to be 20.5 percent of total costs in 2018 (up from 18.8 percent in 2017), said IATA.
Pompeo says China is engaging in ‘predatory economics 101’
- He said China’s recent claims of “openness and globalization” are “a joke.”
DETROIT: China is engaging in “predatory economics 101” and an “unprecedented level of larceny” of intellectual property, Secretary of State Mike Pompeo told a business audience Monday.
Pompeo made the remarks at the Detroit Economic Club as global markets reacted to trade tensions between the US and China. Both nations started putting trade tariffs in motion that are set to take effect July 6.
He said China’s recent claims of “openness and globalization” are “a joke.” He added that China is a “predatory economic government” that is “long overdue in being tackled,” matters that include IP theft and Chinese steel and aluminum flooding the US market.
“Everyone knows ... China is the main perpetrator,” he said. “It’s an unprecedented level of larceny.”
“Just ask yourself: Would China have allowed America to do to it what China has done to America?” he said later. “This is predatory economics 101.”
The Chinese Embassy in Washington did not immediately respond to a request for comment.
Pompeo raised the trade issue directly with China last week, when he met in Beijing with President Xi Jinping and others.
“I reminded him that’s not fair competition,” Pompeo said.
President Donald Trump has announced a 25 percent tariff on up to $50 billion in Chinese imports. China is retaliating by raising import duties on $34 billion worth of American goods, including soybeans, electric cars and whiskey. Trump also has slapped tariffs on steel and aluminum imports from Canada, Mexico and European allies.
Wall Street has viewed the escalating trade tensions with wariness, fearful they could strangle the economic growth achieved during Trump’s watch. Gary Cohn, Trump’s former top economic adviser, said last week that a “tariff battle” could result in price inflation and consumer debt — “historic ingredients for an economic slowdown.”
Pompeo on Monday described US actions as “economic diplomacy,” which, when done right, strengthens national security and international alliances, he added.
“We use American power, economic might and influence as a tool of economic policy,” he said. “We do our best to call out unfair economic behaviors as well.”