Middle East airlines' profit may rise 64%

2015 gains seen to hit $1.8b from 2014's $1.1b, will outdo global margin of 4 per cent.

Dubai: Middle Eastern airlines are expected to post a collective $1.8 billion net return for 2015 — a 63.6 per cent rise over 2014 — for an average net margin of 3.1 per cent, or $9.61 per passenger, the International Air Transport Association, or Iata, said on Monday.

The air transport body revised upward its global industry outlook for the year to a $29.3 billion net profit from the previous $25 billion on expected revenues of $727 billion.

Carriers in the Middle East are expected to see a 12.9 per cent growth in passenger numbers this year, the only region with a double-digit expansion, the Iata said.

“Airlines in the region have mixed fortunes, some loss-making, others profitable. An improvement in profitability is also expected to be driven by lower fuel costs,” it said.

In 2014, Middle East carriers posted $1.1 billion net profit.

Globally, the industry will achieve a four per cent net profit margin. “The significant strengthening from the $16.4 billion net profit in 2014 [re-stated from $19.9 billion] reflects the net impact of several global factors, including stronger global economic prospects, record load factors, lower fuel prices, and a major appreciation of the US dollar.”

All regions are expected to see an improvement in profitability in 2015 compared with 2014. There are, however, stark differences in regional economies, which are also reflected in airline performance. “The industry’s fortunes are far from uniform. Many airlines still face huge challenges,” said Tony Tyler, Iata’s director-general and chief executive officer.

The 2015 industry outlook is based on an average Brent crude oil price of $65 per barrel, which is 36 per cent below the 2014 price of $101.4. The Iata said over half the global profit is expected to be generated by airlines based in North America ($15.7 billion).  

“For the airline business, 2015 is turning out to be a positive year. Since the tragic events of September 2001, the global airline industry has transformed itself with major gains in efficiency. This is clearly evident in the expected record high passenger load factor of 80.2 per cent for this year. The result is a hard-earned four per cent average net profit margin. On average, airlines will retain $8.27 for every passenger carried,” said Tyler.

“Let’s keep things in perspective. Apple, a single company, earned $13.6 billion in the second quarter of this year. That’s just under half the expected full-year profit of the entire airline industry. We don’t begrudge anyone their business success. But it is important for our stakeholders, particularly governments, to understand that the business of providing global connectivity is still a very tough one,” said Tyler.

The Iata said a significant milestone has been achieved with an expected return on invested capital, or ROIC, of 7.5 per cent. For the first time, the industry-level average ROIC will be in excess of its cost of capital, which has fallen to 6.8 per cent largely due to lower bond yields. This industry average is, however, dominated by airlines in the US, which have benefitted the most from the fall in fuel prices, a strong local economy and industry restructuring.  

The passenger business is expected to grow some 6.7 per cent in 2015, acceleration on the six per cent growth recorded in 2014. Passenger numbers are still expected to top 3.5 billion for the first time in 2015. The cargo business is expected to grow 5.5 per cent this year, which is a slightly slower pace than the 5.8 per cent realised in 2014. “There was a strengthening of the cargo business in 2014 that continued into this year. Expected revenues — estimated at $62 billion — would have exceeded the $67 billion peak in 2011 were it not for the appreciation of the US dollar,” the Iata said.

The number of aviation jobs is rising although the pace of hiring is expected to taper slightly in 2015. Total direct employment in the sector is expected to reach 2.5 million (up 3.1 per cent on 2014).

issacjohn@khaleejtimes.com