Middle East carriers forecast to earn $1.5bn profit in 2013

June 3, 2013 4:03 pm

In its latest report, IATA has revised its global profit forecast upward to $12.7bn, citing a more efficient use of assets as the main factor behind the improved outlook. The new forecast is $2.1bn higher than the $10.6bn profit that the trade body had projected in March, and significantly higher than the $7.6bn profit that the industry generated in 2012.

While noting that load factors and ancillary revenues are improving, IATA pointed out that macro-economic factors are also helping the industry. The trade body predicts that oil prices are will average $108 a barrel this year, down from $111.8 in 2012, in part due to increasing supply from North America.

“Generating even small profits with oil prices at $108/barrel and a weak economic outlook is a major achievement,” said Tony Tyler, IATA’s Director General and CEO. “Improved performance is what’s keeping airlines in the black. Airlines are putting more people in seats. For the first time in history, the industry load factor is expected to average above 80% for the year. And with ancillary revenues topping 5%, it is clear that airlines have found new ways to add value to the travel experience and to shore-up the bottom line.”

Still, profitability is thin and margins remain weak, IATA warned. On revenues that are expected to total $711bn this year, the net profit margin is expected to be 1.8%. Yet, even this small margin will make 2013 the third strongest year for airlines since the events of 2001.

“This is a very tough business. The day-to-day challenges of keeping revenues ahead of costs remain monumental. Many airlines are struggling. On average airlines will earn about $4 for every passenger carried-less than the cost of a sandwich in most places,” Tyler noted.

Regionally, Middle East carriers are expected to show a profit of $1.5bn, slightly improved from the previous projection of $1.4bn. Passenger demand is expected to continue apace at 15.0%, well ahead of the anticipated 12.6% capacity expansion. The region’s successful hubs continue to connect long-haul traffic, with particular strength in facilitating connectivity to emerging economies in Asia and Africa, IATA said.

Forecast to post a combined profit of $4.6bn 2013 (up from the previous projection of $4.2bn) Asia-Pacific will lead all regions both in terms of absolute profits and earnings before interest and taxes (EBIT) margin (5.0%), IATA said. The main driver is strong growth in China and long haul markets, supported by buoyant trade flows and other business activities

European airlines are expected to report profits of $1.6bn, double the previous projection of $0.8bn. While this is a significant improvement, the region’s EBIT margin is expected to be just 1.3%, second lowest after Africa at 0.9%.

North American airlines are expected to deliver a $4.4 billion profit, significantly up from the $3.6 billion projected previously. Structural changes, such as consolidation and efficiency measures in the domestic market are the main drivers of this better performance.

Meanwhile, African airlines continue to be the weakest performers, with passenger load factors below 70%, operating margins averaging less than 1% and profits of just $100m. Compared with the $100m loss of 2012, however, this is a better performance, IATA noted.