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IATA Cuts Middle East Carriers' Profit Forecast by Half |
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Tuesday, 13 December 2011The International Air Transport Association (IATA) has slashed its 2011 profit forecast for Middle East carriers by 50%, citing tighter margins on long-haul routes due to high fuel costs. The trade body also warned that failure to stem the Eurozone banking crisis could lead to heavy losses for the global aviation sector next year.
In revising its earlier forecast issued last September, IATA lowered its 2011 profit forecast for Middle East carriers from $800 to $400m, 'as high fuel costs squeezed profit margins on the more price sensitive long-haul traffic connecting over Middle Eastern hubs'.
IATA's Director General and CEO Tony Tyler emphasised that while the trade body's worldwide profit target for 2011 was unchanged at $6.9bn, 'regional differences have widened, reflecting the very different economic environments facing airlines in different parts of the world'.
Eurozone crisis poses risk
Looking ahead, the IATA cut its 2012 global profit forecast from $4.9bn to $3.5bn, warning that the Eurozone banking crisis puts a severe downside risk on its outlook for next year. "The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis," Tyler said. "Such an outcome could lead to losses over $8bn - the largest since the 2008 financial crisis."
The trade body also trimmed its estimate for the Middle East in 2012. "Middle East carriers are expected to post a $300m profit, less than half the previously forecast $700m profit, as long haul market conditions deteriorate, in particular those linked to the weak European economies," IATA said.
Saj Ahmad, an analyst at FBE Aerospace, said he was not surprised by the revised forecasts for the Middle East. "IATA's forecasts were pretty predictable in the wake of the continued slow pace of global economic reform as well as fuel cost escalation, heightened more recently in the wake of the Iranian nuclear programme and the effects any new conflict there could have on fuel prices," he noted.
"For the GCC and wider Arabian Peninsula, the concern I have is that price wars are not doing enough to generate profitability and we've seen through Emirates' fall in first half profits an indicator of that. In essence, the only real way to combat such rises in fuel costs is to pass that price pressure onto customers through taxes, ticket/fare increases and other surcharges (baggage etc). Whoever moves first to implement these changes will almost certainly create a ripple effect and other airlines will follow suit," he added.
Asia-Pacific on the upswing, but EU, Latin America down
Looking at other parts of the world, IATA boosted Asia-Pacific's profit forecast by $800m to a $3.3bn profit, the largest absolute profit among the regions, as airlines have improved load factors and profitability on China's expanding domestic market.
North American carriers are also on stronger footing, having seen yield and load factor improvements as a result of tight capacity management, which has improved profitability to $2bn (up from the previously forecast $1.5bn).
European carriers are by far in the most challenging position, IATA said, noting that higher passenger taxes and weak home market economies have limited profitability in Europe. The region's carriers are forecast to generate a collective profit of just $1.0bn, down from the previously forecast $1.4bn.
Latin American profits will also see a downgrade to $200m (from the previously forecast $600m), with much of the downgrade due to the impact of intense competition and falling load factors on Brazil's domestic market.
IATA's forecast that African carriers will break even remained unchanged. New trade lanes with Asia are developing and markets within the continent are reflecting the improvement in economic development in many African economies. However, competition has been fierce and the region's airlines have struggled to keep load factors at profitable levels, the trade body said. |
Tuesday, 13 December 2011
AME Info
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