Higher fuel costs to hit bottom line for regional airlines

Carriers will earn a combined net income of $18.7 billion, versus the $19.7bn forecast on December 12, Iata said. Revenues will reach about $745bn, about $2bn higher than previously projected.

Rising fuel costs could cut $200 million from the profits of Middle East airlines this year, according to an international aviation body.

The International Air Transport Association (Iata) expects Middle Eastern airlines to register $2.2 billion profit this year, less than previously expected. Those airlines made $1.6 billion in profit in 2013.

Still, the global industry is on track to deliver a second consecutive industry of improved profitability despite a slight downward revision. Iata now expects the global industry to generate profits of $18.7bn in 2014 from the previously forecast $19.7bn.

While rising oil prices are expected to hit the aviation fuels bills of carriers worldwide, the trend is also boosting revenues for Gulf oil producers and encouraging regional travel.

“Oil revenues from high oil prices are benefiting the home markets and the region’s carriers continue to win market share in long-haul connections through the region’s hubs,” said Tony Tyler, Iata’s director general and chief executive.

Fuel currently accounts for some 30 per cent of the average airline cost structure with recent tension in Ukraine, Libya and elsewhere in the Middle East sparking a rising trend in prices.

Jet fuel prices are also expected to be higher at $124.6 per barrel, a $1.70 increase than previously forecast by Iata.

Thanks to their strategic location, cities like Abu Dhabi, Dubai and Doha are becoming a central stage for world travel, as more passengers switch planes on long-haul routes, eating into the market share of more established hubs in Europe.

However, Iata warned that air traffic congestion in the Arabian Gulf was a concern.

“There’s plenty of airspace there, but it needs to be managed in a more efficient way,” said Mr Tyler following the announcement of the predictions.

Iata predicted that North America will be the largest contributor to global profits with its airlines expected to post $8.6bn in profits this year. This is on the back of “consolidation and joint ventures”, it said. European airlines were expected to post $3.1bn in profit this year, hobbled by high taxation, inefficient air traffic management and difficult regulation.

Asia Pacific was expected to deliver $3.7bn of profits, helped by cargo prospects, but slower growth in India and Indonesia was expected to have a negative effect.

“In general, the outlook is positive. The cyclical economic upturn is supporting a strong demand environment. And that is compensating for the challenges of higher fuel costs related to geopolitical instability. Overall industry returns, however, remain at an unsatisfactory level with a net profit margin of just 2.5 per cent,” said Mr Tyler.

Overall, fuel costs are expected to rise by some $3bn to $213bn compared to the December forecast from Iata.

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