Middle East airline profits to roar back in 2018

An Emirates Airline Boeing 777 aircraft is seen next to an Airbus A330-300 as it takes off from Abidjan. Global aviation body IATA expects Middle East carriers to boost profits in 2018 after a turbulent year which hit airline earnings across the region. (AFP)
Updated 05 December 2017
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Middle East airline profits to roar back in 2018

LONDON: Middle Eastern airlines are forecast to record a significant improvement in profitability in 2018, according to a report from the International Air Transport Association (IATA).
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.


DR Congo’s mining industry hobbled by poor infrastructure

Updated 18 June 2018
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DR Congo’s mining industry hobbled by poor infrastructure

  • DR Congo is Africa’s largest copper producer, and while it is the world’s leading source of cobalt, miners can only export concentrated forms of cobalt at 60-70 percent of the market price because of the energy problem.
  • A massive hydropower project on the River Congo, Inga 3, has the potential to power the entire country and even the continent, but it has been frequently delayed.

LUBUMBASHI: Feasting on a global demand for cobalt and copper, the mining industry in the Democratic Republic of Congo is flourishing — but two clouds loom over its sunny outlook.

First is the lack of power, which is holding back the development of the minerals processing sector and crimping the country’s ability to reap higher profits from the boom.

DR Congo is Africa’s largest copper producer, and while it is the world’s leading source of cobalt, miners can only export concentrated forms of cobalt at 60-70 percent of the market price because of the energy problem.

“We have an estimated potential of 100,000 MW/year but only produce 3,000 MW/year,” said Michael Shengo, chief of staff for the provincial mining minister for Haut-Katanga earlier this week, as he opened DRC Mining Week, an annual conference in the southeastern town of Lubumbashi.

A massive hydropower project on the River Congo, Inga 3, has the potential to power the entire country and even the continent, but it has been frequently delayed.

Now the project looks to be back on track, thanks to a joint bid by Spanish and Chinese companies: China Three Gorges Corp. and Actividades de Construccion y Servicios SA.

Bruno Kapandji, director of the Agency for the Development and Promotion of the Grand Inga Project, announced the project’s relaunch in front of miners and investors at the conference.

“Our objective is to start the Inga project this year. It could take five to seven years, maybe up to 11 years,” said Kapandji.

Another challenge for the mining industry, which represents 20 to 25 percent of the country’s GDP, is a new fiscal law to raise taxes.

Seven mining companies, known locally as “the G7,” have argued the new code violates terms of the previous version, which provided a 10-year stability clause after any fiscal change. Some of the companies could be preparing for legal action as a result.

One of its most vocal members, Mark Bristow, CEO of gold mining company Randgold Resources, had a warning for other industries operating in the country. “Attracting investment and developing a mining industry is about trust,” he said, “and I see the government is making guarantees to other industries (solar, electricity), and what do they think when they see our guarantees are being taken away?“

Discussing and signing deals is one thing, but implementing and developing them remains an immense challenge.

The World Bank has ranked DR Congo 182nd country out of 190 for doing business, and the French credit insurer Coface rates it at the same level as Libya, Venezuela, Afghanistan and Syria, due to the political uncertainties, corruption and poor governance.

There are glimmers of hope in other sectors in the troubled country, currently in the grips of an Ebola epidemic and a bloody internal conflict.

In the capital Kinshasa, French sports retailer Decathlon has just opened its first store — a gamble in a city of 10 million where many are struggling to pay for essentials such as food and shelter.

Richard Kalinda, a Franco-Congolese, who once said his dream was opening a shop in his home country, said: “I have to reach 0.1 percent of the population. We are marketing for the middle class, people who have a regular income.”

However, Kalinda added they will have to adapt their prices to the country’s average salary.

At the 5th edition of the “French week” organized by the Franco-Congolese Chamber of Commerce, the theme set the tone for those looking to invest in the country: “Securing business, a challenge and a necessity.”

For the chamber of commerce, opening and bringing international capital in DR Congo requires being very well informed.

“Companies often have to confront administrative and procedural challenges that could be called fiscal harassment,” said the French ambassador to DR Congo, Alain Remy in an interview with Mining and Business magazine.

Debt-ridden Gecamines, the state-mining company, announced this week it struck a recapitalization deal with its Anglo-Swiss partner Glencore who agreed on a $150 million payment.

Gecamines had started legal proceedings to dissolve the Kamoto Copper Mine, but Glencore has
reportedly agreed to write off the $5.6 billion debt to safeguard the joint venture.

“We are entering a period for the mining industry that will be profitable for all,” said Yuma, “but only if relations
between foreign investors and the DRC are more equitable. The new code will make that possible, and I call on everyone to conform to it.”