Region forges on despite IATA predictions

Another gloomy forecast from industry body IATA predicts that profits for carriers plying the Middle Eastern routes are set to drop by US$100 million to $200 million in 2008.
STORMS BREWING: Etihad and Emirates show no signs of slowing growth despite the prediction from the IATA CEO that 2009 is set to be an even tougher ye
STORMS BREWING: Etihad and Emirates show no signs of slowing growth despite the prediction from the IATA CEO that 2009 is set to be an even tougher ye

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Another gloomy forecast from industry body IATA predicts that profits for carriers plying the Middle Eastern routes are set to drop by US$100 million to $200 million in 2008.

One of the marked changes, from a global point of view, has been the distinct downturn in freight traffic during June and July across the board, with other regions now joining the US in terms of shrinking volumes. Cargo demand contracted by 1.9% compared with the same period last year.

"While there has been some relief in the oil price in recent months, the year-to-date average is $113 per barrel," said Giovanni Bisignani, IATA CEO and director general. "That's $40 per barrel more than the $73 per barrel average for 2007, pushing the industry fuel bill up by $50 billion to an expected $186 billion this year."

As a result of the revised forecast, which predicts that the industry is set to lose $5.2 billion this year, international airfreight volumes are expected to rise by only 1.8% in 2008, down from the 3.9% estimated previously.

With regard to the 2009 forecast, the lack of protection from hedging and continued weak economic growth have led IATA to predict industry losses of around $4.1 billion.

"When fuel goes from 13% of costs to 40% in seven years with an increased cost implication of $183 billion, you simply cannot continue to do business in the same way," added Bisignani.

Middle Eastern airlines have fared much better than their counterparts in other continents, a factor that has helped the Gulf giants to bid for $40 billion worth of aircraft at the Farnborough Air Show, around two thirds of the orders for the entire event. The region accounts for 10% of international traffic and around 8% of freight traffic worldwide.

However, the changing business environment does not seem to have dented regional operators' ability to raise varied forms of finance for new jets. In September, Emirates completed the financing for two Boeing 777-300ER aircraft using the services of Noor Islamic Bank.

"Islamic financing is an important source of financing for Emirates and we have now raised almost $1.3 billion from this market, including the Sukuk Bond," said Brian Jeffery, senior vice president corporate treasury, Emirates Airline.

Similarly, Abu Dhabi-based Etihad has also shown no signs of holding back, as evidenced by CEO James Hogan's recent trip to New York, where he outlined the details of the carrier's long-term growth targets.

On top of increasing its passenger movements significantly, the operator is also planning to double the number of cities it serves from 50 to 100.

"Etihad is already a substantial business and we have signalled our intentions for the future by making recently one of the largets ever commercial aircraft orders," stated Hogan. "Our projections to 2020 reflect the scale of our ambitions, closely aligned to the growth of Abu Dhabi as an economic and tourism powerhouse."

The original IATA prediction stated that the global economy would reach its lowest ebb, before recovering in 2009. However, next year is now forecast to be weaker than this, particularly in the US, but also in Europe and most emerging markets.

The agency did indicate that expansion does remain relatively strong in some emerging markets, which should provide more support for airfreight than in the developed world.

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