Mideast carriers' losses to shrink to $300m in 2010

The Middle East airlines will see losses shrink to $300 million (Dh1.1 billion) in 2010, from a $1.2bn loss the region's airlines suffered in 2009, according to the International Air Transport Association's (Iata) financial outlook for 2010.

This news comes even as the world airlines' losses become larger.

The aviation trade body said yesterday in Geneva that the global airline industry is expected to see net losses of $5.6bn, larger than the previously forecast loss of $3.8bn for the year.

For 2009, however, IATA maintained its forecast of a $11bn net loss. "The world's airlines will lose $11bn in 2009. We are ending an Annus Horribilis that brings to a close the 10 challenging years of an aviation Decennis Horribilis. Between 2000 and 2009, airlines lost $49.1bn, which is an average of $5bn per year," said Giovanni Bisignani, Iata's Director-General and Chief Executive Officer.

Commenting on the Middle East airlines' performance, Bisignani said: "A strong long-haul connection business over the Middle East hubs will provide some insulation against the impacts of Dubai's financial difficulties."

Asked how the region's airlines are expected to be impacted by the current issues in Dubai, Brian Pearce, Chief Economist, Iata, told Emirates Business: "Net losses in the region have been very uneven. While some airlines are profitable in the Middle East, some are still making losses.

"The region has been sheltered by the immediate troubles in Dubai. The airlines in the region can benefit from the patches of strong growth in Asia and other parts of the world."

He said: "The UAE has stepped in to underwrite losses in Dubai. And this, the situation does not look as severe as it did several weeks ago – in terms of financial capability of the UAE."

Meanwhile, as the airline industry faced rough weathers throughout 2009, the Middle Eastern carriers were originally expected see their losses double to $200m in 2009, according to the Iata's 2009 financial forecast.

Furthermore, as per the Iata's December 2009 financial forecast, the Middle East aviation sector is projected to witness a 12.2 per cent increase in 2010 passenger traffic, up from the 9.4 per cent growth recorded in 2009.

Region's performance

Commenting on the impact of Dubai's current financial issues on the airlines' performance in the region, Iata chief, Bisignani, said: "I do not see more impact than in certain other parts of the world. Logically, in a market [the Middle East] that is growing and has put a lot of capacity in place, it will be important to be able to fill and balance all that."

Going by the 2009's month-on-month performance, the Middle East seems to have been the highest growth market in the global aviation industry. But the overall profits recorded by airlines in the region have not been very encouraging.

Stating the reason behind this, Bisignani said: "That is because the level of the yields is declining so fast. So I think the Middle East has to handle effectively the capacity because we are in a moment where we will take some time to recover."

"But in any case it has been a great example of an area of the world that is very quickly developing and becoming a major player of the world," he said.

Asked if Iata saw the Middle East carriers drawing a balance between the capacity and demand in 2010, Bisignani said: "The capacity is something which Iata cannot make any comments on. However, at this moment, it is important to balance capacity in an effective way."

"But I cannot really make any comments on capacity as it is a decision of each individual airline," he added.

Iata, meanwhile, has been warning Gulf airlines of overcapacity. Yet, despite dropping passenger traffic many Middle East airlines are still pushing forward with plans to expand their respective fleet.

Emirates, Qatar Airways and Etihad Airways are expected to more than triple their current fleet by 2015 and most of the other airlines in the region also have substantial orders, according to industry experts.

Middle East carriers are expected to see the overall total capacity growing by eight per cent in the second half of this year compared to the corresponding period in 2008, according to the latest statistics shared with the newspaper by OAG (Official Airline Guide), a UK-based global flight information and data solutions company.

Challenges

Middle East carriers will see a capacity increase of 12.1 per cent next year as against the 10.9 per cent increase they recorded in 2009, according to the Iata forecast.

But while the Middle East carriers are on their way to reduced losses, there are also some disappointments in the way of industry's recovery, according to the Iata chief.

"Like some other countries, Dubai increased its passenger fees by $227m. Keeping user charges under control is a big challenge," said Bisignani.

Similarly, India increased airport charges by $587m, while South Africa is proposing a 133 per cent increase in charges for 2010-11. "In total in 2009, we expect to save our members $1.7bn in charges for airports, air traffic, management and fuel," he said

In terms of safety challenges, meanwhile, the accidental rate in the Middle East is five times the global average, said Bisignani.

"But while there remains only some regional challenges with regards to safety, overall safety has experienced a great decade of continuous improvement," he said, adding that so far this year, the global aviation industry has experienced one accident for every 1.75 million flights, marking a 38 per cent improvement from the same time in 2008. Furthermore, low yields and rising costs keep the aviation industry in the red, according to Iata's financial forecast for next year.

"Yields will continue to remain a challenge for everybody next year. Iata is forecasting no change in passenger yields," said Pearce.

Bisignani said: "The worst is likely behind us. For 2010, some key statistics are moving in the right direction. Demand will likely continue to improve and airlines are expected to drive down non-fuel unit costs by 1.3 per cent. But fuel costs are rising and yields are a continuing disaster. Airlines will remain firmly in the red in 2010 with $5.6bn in losses."

Finally, financing remains a challenge for almost all the airlines across the globe, said Pearce. "While we have managed to recover half the losses in air travel we incurred in 2008, banks are still short of capital and thus they are not lending. Consumers have large debts to clear."


THE 2010 FORECAST HIGHLIGHTS 

- REVENUES: Industry revenues are expected to rise by $22 billion (4.9 per cent) to $478bn in 2010, compared to 2009. However, revenues remain $57bn (-11 per cent) below the peak of $535bn in 2008 and $30bn below 2007 when passenger traffic was at similar levels to what is expected in 2010.

- CACH: Over 2009, the industry raised at least $38bn in cash ($25bn from capital markets and $13bn from aircraft sale and leasebacks). The ratio of cash to revenues improved for European and North American airlines, but was flat for Asia-Pacific carriers. This will provide a cash cushion for the approaching first quarter's seasonally weak traffic lows, according to Iata.

"The number of travellers will be back to the peak levels of 2007, but with $30bn less in revenues. The $38bn cash cushion built up throughout this year will help airlines survive through the low season, but there is no recovery in sight for 2010. Tough times continue," said Iata chief Giovanni Bisignani.

- PASSENGER DEMAND: Following a decline of 4.1 per cent in 2009, passenger traffic is expected to grow by 4.5 per cent in 2010 (stronger than the previously forecast 3.2 per cent in September), as per the Iata forecast. A total of 2.28 billion people are expected to fly in 2010, bringing total passenger numbers back in line with the peak recorded in 2007.

- CARGO DEMAND: Cargo demand is expected to grow by seven per cent to 37.7 million tonnes in 2010 (stronger than the previously forecast five per cent in September), following a 13 per cent decline in 2009. Total freight volumes will remain 10 per cent below the 41.8 million tonne peak recorded in 2007. Iata said the cargo demand is rising faster than world trade as depleted inventories are rebuilt. Once the inventory cycle completes, growth is expected to fall back in line with world trade.

- YIELDS: In 2009, passenger and cargo yields plummeted by 12 per cent and 15 per cent respectively. Cargo yields are expected to improve by 0.9 per cent in 2010 as per the Iata forecast. But passenger yields are not expected to improve from their extraordinary low level.

Capacity adjustments in 2009 were made at the expense of lower aircraft utilisation (down six per cent). An additional 1,300 aircraft due for delivery in 2010 will contribute to 2.8 per cent global capacity growth, putting continuing pressure on yields. 

- FUEL: An average oil price of $75 per barrel (Brent) is expected in 2010, up considerably from the $61.8 average expected for 2009. As a percentage of operating costs, fuel will be 26 per cent in 2010, Iata said. This is considerably lower than the 32 per cent of operating costs that fuel comprised in 2008, but twice the 13 per cent of operating costs that fuel represented in 2001-2002.

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