IATA says Middle East airline net profit will double in 2018

Middle East airlines are forecast to see net profits double next year after a significant slump in 2017, according to the International Air Transport Association (IATA).

The organisation forecast profit would grow to $600m next year from $300m this year on the back of a minor increase in demand.

This indicated a lower forecast for 2017 than announced in June when IATA said Middle East profit would stand at $400m. This was down from $1.1bn in 2016.

Read: Middle East airlines forecast to post 63.6% drop in 2017 profit – IATA

Passenger demand next year is forecast to grow 7.0 per cent, amid the slowest announced capacity expansion seen since 2002 at 4.9 per cent.

“The region’s carriers face challenges to their business models, and from low oil revenues, regional conflict, crowded air space, the impact of travel restrictions to the US, and competition the new “super connector” [Turkish Airlines],” IATA said.

“Despite the challenges, there is positive momentum heading into 2018.”

IATA previously said in its first half forecast that a ban on large electronics on some regional flights to the US was taking its toll on some key routes.

This was later lifted but there is still the prospect of a travel ban by US President Donald Trump that is making its way through the American courts.

In response to the tougher conditions regional carriers have cut costs and unprofitable routes, with Dubai carrier Emirates reporting a 111 per cent increase in profit to $214m in the April 1 to September 30 period after a 75 per cent slump in the first half of its previous fiscal year.

Read: Dubai’s Emirates reports 111% increase in first half profit

Globally, IATA said industry net profit would rise from $34.5bn in 2017 to $38.4bn in 2018 thanks in part to strong demand, efficiency and reduced interest payments.

Passenger numbers are expected to increase 6 per cent to 4.3 billion next year, down from 7.5 per cent this year but ahead of the 10-20 year average of 5.5 per cent.

Demand will also overtake expected capacity growth of 5.7 per cent.

In terms of air freight, cargo volumes are similarly expected to rise at a slower pace than this year, down from 9.3 per cent in 2017 to 4.5 per cent in 2018, to reach 62.5 million tonnes.

IATA said the biggest challenge to profitability in 2018 would be rising costs linked to the higher oil prices and other factors.

The price of jet fuel is expected to increase 12.5 per cent from $65.6 in 2017 to $73.8 in 2018. Labour costs are also rising to become a larger expense than fuel, at 30.9 per cent, according to the organisation.