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Airline industry update: Middle East, flying high

June 2016

June 8, 2016 | 17:05 | Dubai 

In its recently released report, Economic Performance of the Airline Industry, the International Air Transport Association (IATA) highlighted Middle Eastern carriers posting a 12.7% traffic increase in April. This is largely in line with the projections made for the region, which highlight the Middle East as the only region to have continually recorded double digit growth.

Exhibit 1

Other highlights from the report

  • Consumers will see a substantial increase in the value they derive from air transport this year, including a reduction in what they pay.

The price of air transport for users continues to fall, after adjusting for inflation. The average return fare (before surcharges and tax) of USD 366 in 2016 is forecast to be 62% lower than 21 years earlier, after adjusting for inflation.

  • Airline CFOs and heads of cargo reported in April that they had become more positive about future growth in air travel, but were less positive about cargo.

Exhibit 2

  • Debt providers to the airline industry are well rewarded for their capital, usually invested with the security of a very mobile aircraft asset to back it. On average during the business cycle the airline industry has been able to generate enough revenue to pay its suppliers’ bills and service its debt.

Exhibit 3

  • Commercial airline fleet is forecast to increase by over 1100 aircraft to end this year at almost 28,000 aircraft; lower fuel prices will lead to fewer older aircraft leaving the fleet. The average size of aircraft in the fleet is continuing to rise slowly. So by the end of 2016 there will be around 3.9 million available seats.

Exhibit 4

  • Airlines fuel bill will fall to USD 127 billion, which will represent less than 20% of their total operating costs, for the first time since 2004.

Middle Eastern airlines have one of the lower breakeven load factors. Average yields are low but unit costs are even lower, partly driven by the strength of capacity growth; forecast at 12.2% this year. Post-tax profits are expected to grow to $1.6 billion this year, representing a profit of $7.83 per passenger and a net margin of 2.5%. Amongst other regions, North America continues to record the strongest financial performance while Africa remains the weakest region, as has been the case in the last 2 years.

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