Business | Aviation
Mideast airlines profits will fall up to $200m
High oil prices have produced more gloomy news for the airline industry as a revised financial forecast shows that the combined profit of Middle East carriers will drop by 33 per cent ($100 million) to $200 million this year, while airlines globally will post losses of $5.2 billion this year.
- By Shakir Husain, Staff Reporter
- Published: 23:12 September 5, 2008
Dubai: High oil prices have produced more gloomy news for the airline industry as a revised financial forecast shows that the combined profit of Middle East carriers will drop by 33 per cent ($100 million) to $200 million this year, while airlines globally will post losses of $5.2 billion this year.
The outlook for 2009 also remains pessimistic, the Geneva-based International Air Transport Association (IATA) said in its new industry projections.
Although Gulf-based airlines have fared better than their peers elsewhere in traffic growth and have ordered dozens of new planes this year to meet ambitious expansion plans, the rising cost of jet fuel is set to dent their profitability.
The region's three dozen airlines will see their combined profit drop by $100 million to $200 million, said IATA, which represents 240 airlines.
The Middle East accounts for about 10 per cent of international passenger traffic and some eight per cent of freight movement.
North American carriers are seen as the worst-affected by soaring fuel prices, with their losses projected to be $5 billion in 2008.
Worldwide shrink
The Asia Pacific region is expected to see profits shrink from $900 million in 2007 to $300 million this year. European profits will tumble seven-fold from $2.1 billion in 2007 to $300 million in 2008, while Latin American and African carriers will see losses drop to $300 million and $700 million respectively, according to IATA.
"The situation remains bleak. The toxic combination of high oil prices and falling demand continues to poison the industry's profitability. We expect losses of $5.2 billion this year," IATA's director-general and chief executive officer Giovanni Bisignani said.
The new figure is a drastic revision from a December industry forecast by IATA of $5 billion in profits. This also means the industry will go back to being in the red, with only 2007 being profitable in the last eight years.
The crude oil price this year has averaged $113 per barrel, $40 more than the average price for 2007. The price of jet fuel has averaged $140 per barrel.
This has pushed the industry fuel bill up by $50 billion to an expected $186 billion this year, Bisignani said. Fuel is expected to rise to 36 per cent of operating costs, up from 13 per cent in 2002.
IATA believes "the difficult business environment" will continue in 2009 and weaker econ-omies will have a negative impact on air travel and freight traffic.
Twenty-five airlines have ceased operations this year, but Gulf carriers are maintaining double-digit growth on the back of strong economic growth supported by rising state oil export revenues.
At July's Farnborough Air Show, airlines based in the Gulf shopped for $40 billion worth of Airbus and Boeing planes, accounting for roughly two-thirds of total orders at the event.
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