Middle East airlines set to take-off with $1.4bn profits

Middle Eastern airlines are expected to post a profit of $1.4 billion during this year, while globally the airline industry will see a modest improvement in its financial performance, says an Iata forecast. The numbers for the Middle East is up slightly from the $1.1 billion previously forecast and stronger than the $900 million profit recorded in 2012, Iata said. The growing role of the region’s airlines in providing connectivity to developing markets is reflected in strong traffic growth. The region’s airlines are expected to add 12.8 per cent in capacity in 2013 and this will be outpaced by demand growth of 13.7 per cent. The region’s carriers rank third in terms of operating profitability with an Earnings Before Interest and Taxes (EBIT) margin of 3.4 per cent, after Asia-Pacific (5.3 per cent) and North America (4.1 per cent), said the Iata report. Iata expects global airlines to produce a combined net post-tax profit margin of 1.6 per cent (up from the previously forecast 1.3 per cent) with a net post-tax profit of $10.6 billion (up from the previously projected $8.4 billion). “Industry profits are taking a small step in the right direction. Against a backdrop of improved optimism for global economic prospects passenger demand has been strong and cargo markets are starting to grow again. The economic optimism is also pushing fuel prices higher. We are seeing a $12 billion improvement in revenue, and a $9-10 billion increase in costs—most of which is related to fuel,” said Tony Tyler, Iata’s director general and CEO. Confidence in the airline industry is rising around several factors: • GDP growth forecasts for 2013 have been upgraded to 2.4 per cent, a significant improvement from the 2.1 per cent in 2012. • It appears that the bottom of the global industrial production cycle was reached in the third quarter of 2012 after which there has been six months of increasing output and improvements to business confidence. • There is a structural improvement in the airline industry’s financial performance as recognized by a 7 per cent increase in share prices since the beginning of the year, despite a 5 per cent increase in fuel costs. Risks and Volatility Iata noted that considerable risks remain which could derail recovery. The outlook is based on evidence of growing business confidence. But the controversy over the draconian bailout proposal for Cypriot financial institutions is a clear indicator that the Eurozone crisis is not over and could take a turn for the worse. Albawaba Business