Middle East airlines set for rebound

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Aden - Yasmine El Tohamy - The global airline industry is forecast to record a net profit of $29.3 billion in 2020, building on a net profit of $25.9 billion expected in 2019, the International Air Transport Association (Iata) said on Wednesday.

The umbrella trade body of more than 250 airlines said if the predicted target could be achieved, 2020 would mark the industry's 11th consecutive year in the black. The $25.9 billion profit projection given for in 2019 has been revised downward from a $28 billion forecast made in June.

In the Middle East, carriers continue a restructuring process and announced schedules point to a substantial slowdown in capacity growth for 2020, the Iata said.

"After very weak economic growth in 2019, which limited local traffic, some rebound is expected in 2020 for Middle Eastern carriers. Restructuring and stronger growth will boost performance. But this will take time and a loss is expected for a third consecutive year, estimated at $1 billion, trimmed from $1.5 billion in 2019," the trade body said.

"Slowing economic growth, trade wars, geopolitical tensions and social unrest, plus continuing uncertainty over Brexit all came together to create a tougher than anticipated business environment for airlines. Yet the industry managed to achieve a decade in the black, as restructuring and cost-cutting continued to pay dividends," said Alexandre de Juniac, the Iata's director-general and CEO.

"It appears that 2019 will be the bottom of the current economic cycle and the forecast for 2020 is somewhat brighter. The big question for 2020 is how capacity will develop, particularly when, as expected, the grounded 737 MAX aircraft return to service and delayed deliveries arrive," said de Juniac.

In 2020, global GDP is forecast to expand by 2.7 per cent - marginally above the 2.5 per cent growth in 2019. World trade growth is expected to rebound to 3.3 per cent from 0.9 per cent in 2019, as election year pressures in the US contribute to reduced trade tensions.

"Growth is supported by actions from central banks as well as easing fiscal policy," it said.

In 2020, the return on invested capital is forecast to be 6 per cent improved from 5.7 per cent expected in 2019, while net profit margin is forecast at 3.4 per cent, up from 3.1 per cent for 2019. Overall industry revenues in 2020 are forecast to reach $872 billion, up four per cent on $838 billion in 2019. Industry operating expenses are projected to climb 3.5 per cent to $823 billion from $796 billion in 2019 while passenger numbers are expected to reach 4.72 billion, up 4 per cent from 4.54 billion in 2019.

Freight tonnes carried are expected to recover to 62.4 million, a 2 per cent increase over 2019, which was the lowest figure in three years. In 2020, stronger economic growth should support passenger traffic growth of 4.1 per cent similar to 2019 but below historical trends while average net profit per departing passenger will be $6.20.

In 2019, economic performance was weaker than had been anticipated at the time of the June forecast, tje Iata said. "This aligns with weaker global GDP growth of 2.5 per cent [versus 2.7 per cent forecast in June] and world trade growth of just 0.9 per cent [down from 2.5 per cent forecast in June]. These negative developments contributed to softer passenger and cargo demand and corresponding weaker revenue growth, as passenger yields fell three per cent and cargo yields dropped 5 per cent compared to 2018," the Iata statement said.

In 2019, operating expenses did not rise as much as anticipated (3.8 per cent vs. 7.4 per cent June forecast) largely owing to lower-than-expected fuel costs; but this was not enough to offset the softness in revenue.

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Issac John

Editorial Director of Al Khaleej Today, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Al Khaleej Today. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.

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