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Bright 2010 ahead for Middle East carriers, says IATA

DUBAI - Middle Eastern carriers are expected to return to profit this year after their first since 2005 while global aviation industry is likely to see profit in 2010 after two consecutive years of losses, according to the International Air Transport Association, or IATA.

The aviation trade body expects airlines to post a global profit of $2.5 billion in 2010. This is a major improvement compared with IATA’s previous forecast released in March of a $2.8 billion loss.

“Middle Eastern carriers are expected to post a profit of $100 million — their first since 2005. This is significantly better than the previously forecast $400 million loss and the $600 million that the region’s carriers lost in 2009,” the body said in a statement on Monday.

GDP growth of 4.3 per cent is outstripping the global average and Gulf carriers continue to gain market share through their hubs for Europe to Asia-Pacific traffic even as capacity is being added at a more cautious rate, IATA said.

Industry revenues are forecast to be $545 billion in 2010. This is up from the $483 billion in 2009, but still below the $564 billion achieved in 2008.

“The global economy is recovering from the depths of the financial crisis much more quickly than could have been anticipated. Airlines are benefiting from a strong traffic rebound that is pushing the industry into the black,” said Giovanni Bisignani, IATA’s Director General and chief executive.

“We thought that it would take at least three years to recover the $81 billion (14.3 per cent) drop in revenues in 2009. But the $62 billion top line improvement this year puts us about 75 per cent on the way to pre-crisis levels,” he said.

The $2.5 billion profit comes with some important health warnings. First, this represents a net margin of just 0.5 per cent, which is a long way from sustainable profitability.

Second, a major part of the global industry is still posting big losses. A stagnating economy, strikes, natural disasters, and a currency crisis have left European carriers struggling with an anticipated $2.8 billion loss.

Traffic

Passenger traffic is forecast to grow by 7.1 per cent in 2010 while cargo traffic will expand by 18.5 per cent. This is significantly better than the previous forecast growth of 5.6 per cent and 12 per cent respectively. Over the first quarter, the industry was growing at an annualised rate of nine per cent for passenger and 26 per cent for cargo. Much of the cargo growth is associated with inventory re-stocking. As this cycle completes with normal inventory to sales ratios, we are expecting moderate growth driven by consumer spending.

Yields

Yields are now forecast to grow by 4.5 per cent for both the cargo and passenger business. This is a significant improvement from the previously forecast yield growth of two per cent in passenger markets and 3.1 per cent for cargo.

The 4.5 per cent rate is just ahead of consumer price inflation. This is contributing strongly to the 13 per cent rise in revenues forecast for 2010. Despite the increase, revenues remain four per cent below their 2008 peak.

Load factors

New capacity will be added to the global system as a result of the 1,340 aircraft that are scheduled to join the fleet in 2010. Of these, approximately 500 are replacement aircraft while the rest will be new capacity.

Latent capacity is also present as a result of reduced long-haul fleet utilisation which remains several percentage points below pre-crisis levels. Over the year, we expect an average demand improvement of 10.2 per cent (passenger and cargo) to be met with a 5.4 per cent increase in capacity. This will support load factors which remained near record levels for most of the first quarter.

abdulbasit@khaleejtimes.com