Middle East airlines can expect a return to profits by end 2023, but they need to keep tabs on fuel costs. Image Credit: Shutterstock

Doha: Buoyed by sharp demand for international travel, Middle East airlines will become profitable next year, according to the latest IATA forecasts. Region-wide losses for these airlines this year will dip to $1.9 billion from $4.7 billion loss in 2021. Air travel demand - measured in revenue passenger kilometres (RPKs) - is expected to reach around 79 per cent of pre-Covid levels.

“CEOs in the region are very positive about their financial performance, so I don’t see any reason why this region won’t be profitable in 2023,” said Willie Walsh, Director-General of the International Air Transport Association during a media briefing in the Qatari capital. Qatar Airways, one of the Gulf’s largest carriers, reported a profit of $1.5 billion for 2021, compared to a year ago loss of $4.1 billion. Emirates airline, the world’s largest long-haul carrier, is expected to return to profitability in 2023.

Walsh does not see growth getting derailed by another wave of restrictions. “We won’t see closures to the same extent because a lot of governments have recognized that closing the border has no benefit,” said Walsh. “The data is clear, (the restrictions) didn’t stop the virus from spreading, and in many cases, the border was closed after the virus was widespread in the country. The economic cost of closing the border was so high that I don’t think there’ll be an appetite for governments to incur that cost.”

Following the relaxation of curbs earlier this year, travel has taken-off in a major way, but the surge in oil prices to over $100 a barrel has emerged as a major concern for airlines. The IATA chief is confident that carriers will be able to make money even with high fuel prices. Depending on the type of fleet, fuel can represent around 25-40 per cent of an airline’s fixed expenses.

“We’ve seen prices high and the industry make profits, and we’ve seen oil prices low and the industry lose money,” said Walsh. “It’s a factor, but it very much depends on how airlines respond to these conditions.”

Cargo boost

During the pandemic, Gulf airlines benefited from a rapid surge in cargo demand. Abu Dhabi-based Etihad Airways posted a sharp drop in 2021 losses, largely due to a 49 per cent increase in cargo revenues. “All airlines sort of shifted their emphasis to cargo during the two years of the pandemic because it was a source of valuable cash and revenue for them,” said Walsh. “The recovery here will be determined other markets such as China, Africa and India as well.”

Cargo revenues are expected to account for $191 billion of industry revenues this year. That is down slightly from the $204 billion recorded in 2021, but nearly double the $100 billion achieved in 2019.

All models work

Low-cost carriers were among the first airlines to bounce back from the pandemic as they benefited from a stronger preference for short-haul flights in some markets. Sharjah-based Air Arabia, which reported a profit in 2021, saw a 756 per cent surge in its first quarter profit this year amid a recovery in global air travel demand. Walsh believes that all airline types can succeed as long as they are run well.

“The business model doesn’t determine your success, because there have been low-cost airlines and network carriers that have failed,” said Walsh. “What determines success is how those airlines are run, but there’s opportunities for growth in all segments of the market.”

The current problems in the industry - such as staffing shortages and airline disruptions – are ‘teething’ issues after a two-year long pandemic. “It’s a perfect storm, but these are strong winds compared to what we’ve gone through in the past two years,” said Walsh.