Mideast airlines will see steady demand

Dubai: Air travel demand in the Middle East will increase by 1.2 per cent this year but significant seating capacity expansion means carriers in the region will post a combined loss of $900 million (Dh3.2 billion), an industry group said on Tuesday.

The Geneva-based International Air Transport Association (IATA) revised its loss forecast for the Middle East airlines from the previous $800 million as the widening global economic downturn takes its toll on the travel business.

Despite the difficult economic conditions, the Middle East will be "the only region with demand growth in 2009," IATA noted in a statement but added that the projected growth of 1.2 per cent will be overshadowed by the impact of a 3.8 per cent increase in capacity.

"While this is significantly below the double-digit growth of previous years, the region continues to add capacity ahead of demand," said IATA, which represents 230 airlines.

An industry analyst said with capacity outstripping demand there will be further pressure on airlines in the region.

"Price pressures are likely to increase in order to fill the new capacity from a smaller overall global market unless some slowdown in deliveries takes place. It may well be possible that one or more of the Middle East carriers will look to slow their growth rates to ameliorate these problems," John Strickland, director of Britain-based aviation consultancy JLS, told Gulf News.

Airlines such as Emirates, Etihad and Qatar Airways are expanding at a furious pace, acquiring planes and adding destinations. Emirates at present operates 131 planes and will receive two aircraft every month this year. The carrier has 163 planes on order worth $55 billion at list prices. Etihad Airways operates a fleet of 44 aircraft and will be getting 11 planes this year. It has 205 planes worth $43 billion on order.

Qatar Airways operates 68 planes and has ordered for more than 200 aircraft worth over $30 billion.

This is in contrast to sharp capacity reductions and route terminations by airlines in places such as the US, Europe and Japan. IATA has predicted losses of $4.7 billion for the global aviation industry in 2009 compared with its previous forecast of $2.5 billion loss. Industry revenues are expected to fall by 12 per cent to $467 billion.

"The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago," IATA director-general Giovanni Bisignani said in a statement.

While saying "the industry is in intensive care," Bisignani sees lower fuel prices as the only good news in the global recession.

Global crude prices have fallen about two-thirds since the historic peak of more than $147 per barrel in July last year.

"Fuel is the only good news. But the relief of lower fuel prices is overshadowed by falling demand and plummeting revenues," Bisignani said.

With an oil price of $50 per barrel, the industry's fuel bill is expected to drop to 25 per cent of operating costs compared with 32 per cent in 2008 when oil averaged $99 per barrel.

Total expenditure on fuel is expected to fall to $116 billion this year compared with $168 billion last year.

Carriers in the Asia Pacific region are expected to post losses of $1.7 billion.

North American airlines on the other hand are expected to perform better with a combined $100 million profit as a demand fall of 7.5 per cent will be matched by a similar capacity reduction.

Europe's carriers are expected to lose $1 billion in 2009.