Middle East airlines profits dive

The price of crude over the past year has dented what would otherwise have been a good season for carriers.

Major carriers in the Gulf, including Qatar Airways, have vowed to stem losses and reach break even point in the next two to four years.

ABU DHABI // Profits for the 35 airlines based in the Middle East may drop by one-third to US$200 million (Dh734m) this year, while airlines worldwide will lose a combined $5.2 billion due to high oil prices, the International Air Transport Association (IATA) predicts.
However, airlines from the oil-rich Gulf states have vowed to press on with expansion plans, with Gulf Air placing a multibillion-dollar order with Boeing.
Oil hit a record high above $147 a barrel in July, but has fallen by 26 per cent since then, providing some relief to carriers. The price of jet fuel is still up 59 per cent from a year ago, selling at $140 a barrel this week.
"There is no fat left. To survive this crisis, even more massive changes will be needed," said Giovanni Bisignani, the director general and chief executive of IATA, earlier this summer.
The year-to-date average for oil is $113 per barrel according to IATA, a trade group representing more than 240 airlines. This is $40 a barrel more than last year's average of $73 a barrel. This year, airlines will spend an additional $50bn due to the increase, pushing their total fuel bill to $186bn.
With many Gulf airlines implementing aggressive and costly expansion campaigns to woo passengers from Asian and European carriers, the region's profits will rest largely with the Emirates Group, which last year made Dh5.29bn despite rising fuel costs.
The other major Gulf carriers - Etihad, Qatar Airways, and Gulf Air - have vowed to stem losses and reach break-even point in the next two to four years.
Some bright spots include the region's established budget carriers, Air Arabia and Jazeera Airways, which both reported profits recently despite the challenging outlook.
IATA's latest global forecast represents a dramatic turn of events in the airline industry. Only one year ago airlines were seen to be finally emerging from several years of losses following the aftermath of September 11. The industry posted a small profit last year for the first time since 2001 and was projected to earn $7.8bn this year. But then oil broke $100 a barrel and continued on a bull streak to nearly $150 in July, leading IATA to calculate an industry-wide loss of $5.2bn.
Despite the higher fuel costs, Gulf carriers have spent lavishly on new aircraft orders as they have sought to create a new centre for the global airline industry. Yesterday, Gulf Air, the national airline of Bahrain, signed a letter of intent to buy eight wide-bodied Boeing 787 Dreamliners worth about $1.68bn at list prices. The deal, signed yesterday in Washington State by Talal al Zain, the chairman of Gulf Air, adds to an existing order for 16 Dreamliners that the carrier signed in January. The aircraft would be used to firm up existing routes as well as launch new destinations, a company spokesman said. Production of the Boeing 787, considered the fastest selling aeroplane in history with nearly 900 sold before the first delivery, has been delayed by at least 14 months. Gulf Air expects to receive its first of 24 Dreamliners in 2016.
Gulf Air flies throughout the Gulf and to Asia, Europe and Africa using a total of 30 leased and owned aircraft. In May, Gulf Air ordered 35 aircraft from Airbus, including 15 A320 single-aisle aircraft and 20 A330-300s, worth $5.17bn at list prices.
Emirates, the largest carrier in the region, placed an order for 60 new wide-bodied aircraft from Airbus in July, worth $11.8bn at list prices. The same month, Etihad, Based in Abu Dhabi, announced one of the largest civil aircraft orders in history worth $43bn for up to 205 new aircraft from Boeing and Airbus, if all options are exercised.
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