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Regional Economic Outlook

Industry performance update – Africa & the Middle East, H1 2016

The performance of the key international markets that touch on the AME region over the first half of 2016 –in terms of both passenger traffic and load factors – has been mixed, although the latest regional financial outcomes are positive overall. The AME airlines have struggled against various headwinds, including the impact of oil price and currency developments (perhaps most notably, but far from exclusively, in Nigeria), political upheaval and geopolitical tensions and ongoing safety and security concerns. While the challenging operating environment looks set to continue, the news is not all bleak for industry outcomes and the outlook in the region. 

Recent market performance

The two largest markets for the AME region (by % share of global RPKs) – Middle East-Asia and Middle East-Europe – both saw robust traffic growth during the first half of 2016.
RPKs grew by a brisk 6.4% year-on-year (yoy) for ME-Asia, up solidly on the 5.1% increase seen in the same period in 2015. Although traffic grew faster on routes between the ME and Europe (7.8%yoy), this represents a slowdown on the very strong 9.6%yoy increase seen in H1 2015.

  • The general slowdown seen on routes to/from Europe reflects, to varying degrees, traveler concerns following the series of terrorist attacks throughout that region in H1 2016.

 

Figure 1: Traffic growth vs. change in load factor by int'l route and domestic market

Despite the robust RPK performance, capacity growth has far outstripped demand on both of these key markets; the passenger load factors fell by 2.8 and 3.3 percentage points (pp) for ME-Asia and ME-Europe respectively.

  • These were the largest yoy declines in loads seen in any of the 20 international markets that we consistently track, and took loads on the routes to record period-lows (note: data available since 2010).
Traffic grew by more than 18% in yoy terms on the Middle East-North America route during H1 2016. However, this was a marked slowdown from the 33% increase seen during H1 2015, and the load factor also declined (down a sizeable2.1pp).
The Africa-Europe market was the second slowest growing of all international markets during H1 2016 (up just 0.8%yoy), only marginally ahead of Europe-Asia. This partly relates to ongoing safety concerns for some of the key Nth African tourist destinations.
Nonetheless, airlines have been able to keep loads high on these routes; in fact, loads averaged a record period-high of 77.2% during H1 2016.
Load factors also increased for the Africa-Middle East market, albeit supported by much stronger demand growth (16.2%yoy).
The smallest international market to or from the region – that between Africa and Asia – posted robust growth in traffic in H1 2016 (8.1%yoy), but the load factor eased by 1.0pp over the period.
 
 
 Figure 2: Change in load factor and historical range by int’l route and domestic market
 

Recent financial performance

Regional financial outcomes (based on carrier region of registration data) remain very mixed. For AME, initial Q2 2016 data show an operating (EBIT) margin of 8.2% – double that of the same period last year, but still below the industry figure (9.9%).

  • The overall industry margin continues to be bolstered by the very strong financial performance of the North American carriers, with a Q2 2016 margin of 17%.

 

Figure 3: Airline operating (EBIT) margins*

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