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.
LIVE: Future Investment Initiative opens in Saudi Arabia
DUBAI: The three-day Future Investment Initiatives (FII), which starts today, is expected to attract thousands of delegates and see deals worth hundreds of billions of dollars.
#FII2018: #Pakistan PM Imran Khan says has spoken to #Saudi Crown Prince Mohammed bin Salman about boosting investment ties between countries. Follow our coverage of the @FIIKSA: https://t.co/NiHQAdPDbg pic.twitter.com/RHng6jWEwQ— Arab News (@arabnews) October 23, 2018
#FII2018: #Pakistan Prime Minister Imran Khan says looking for mix of loans from #IMF and “friendly governments.” Follow our coverage of the @FIIKSA: https://t.co/NiHQAdPDbg pic.twitter.com/pIB1voLumG— Arab News (@arabnews) October 23, 2018
The three-day event will likely see investment partnerships from Russia and China being forged, as noted by Ellen Wald, president of the Transversal Consulting think-tank and author of the recent book “Saudi Inc,” with executives still looking to do business at the Riyadh meeting despite some having pulled out.
#FII2018: PIF chief Yasir Al-Rumayyan on corporate transparency in #KSA: “The #Saudi market is becoming one of the best markets for transparency and disclosure requirements.” Follow our coverage of the @FIIKSA: https://t.co/NiHQAdPDbg pic.twitter.com/Qx9Bweo3Zw— Arab News (@arabnews) October 23, 2018
Executives from the Russian Direct Investment Fund, Russia-China Investment Fund and electronics giant Samsung are listed to speak at the event, joining Saudi speakers including Energy Minister Khalid Al-Falih, Yasir Al-Rumayyan, head of the Public Investment Fund, and sports official Princess Reema bint Bandar.
Yasir Al-Rumayyan, head of the Public Investment Fund, says #Riyadh conference will focus on “doing business for good” and “collaborating for the future” #FII2018 Follow our coverage of the @FIIKSA: https://t.co/NiHQAdPDbg pic.twitter.com/sEVBidDG2A— Arab News (@arabnews) October 23, 2018
“Investing in transformation,” “technology as opportunity” and “advancing human potential” are among the FII’s themes. Held at the Ritz-Carlton hotel in Riyadh, the three-day event is billed as a “blueprint for the 22nd century.”
#FII2018: #Saudi business executive Lubna Olayan on death of #JamalKhashoggi : the “terrible acts reported in recent weeks are alien to our culture and DNA.” Follow our coverage of the @FIIKSA: https://t.co/NiHQAdPDbg pic.twitter.com/4aKIp9HMtw— Arab News (@arabnews) October 23, 2018
#FII2018: Watch a clip of the spectacular opening light show of the Future Investment Initiative (#FII) in #Riyadh. Follow our coverage of the @FIIKSA: https://t.co/NiHQAdPDbg pic.twitter.com/cfV0P5llQe— Arab News (@arabnews) October 23, 2018
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