A bright start to 2017 overall, but headwinds remain for the region…
The strong industry-wide demand momentum in 2H16 has carried through into 2017, with both passenger and freight volumes growing at a pace well-above their long-term averages. Industry profits have been revised higher for 2017, but airlines in the Africa and Middle East region continue to face a challenging operating environment.
2017 has begun strongly…
The momentum in air transport demand in 2H16 has carried through into the first part of 2017. Both RPKs and FTKs are growing at a pace that is well above their long-run average rates.
At the same time, the strong demand backdrop has not – to date – been overshadowed by capacity growth. The passenger load factor has been at or close to historical high levels for the past 6 months while the equivalent freight measure has increased by around 4pp from its low point in early 2016, reaching its highest level in almost 3 years.
Fig. 1: Strong demand underpins load factor gains
…and IATA’s forecasts have been revised up…
Partly due to this strong performance over the first part of 2017, our June forecast update resulted in an upwards revision to a number of key variables, including economic, traffic and financial variables.
Fig. 2: Revisions to IATA’s December forecasts
The upward revisions also extended to the profitability forecasts; industry-wide operating profits are now expected to be ~$56 billion in 2017, down a little from the strong performance of the past two years (~$61-62 billion in each of 2015 & 2016), but a stronger outturn than the $48 billion initially expected for 2017 in December.
Fig. 3: Industry financials to remain robust…
…but performance will vary across regions
On a regional basis, however, the profit story is mixed. Nth America is expected to account for ~50% of total industry profits, with a robust contribution from European and Asia-Pacific airlines also. For Africa and Middle East carriers, however, business conditions are likely to be more challenging.
African carriers are forecast to generate operating profits in the order of $300 million in 2017, broadly on par with that of last year. Middle East carriers are expected to fare little better, with a drop in operating profits expected, from $1.2 billion in 2016, to around $500 million this year.
Fig. 4: …but challenges for the region are ongoing
Commodity prices, along with geopolitical tensions and instability continue to weigh upon the outlook for the industry in the region. Combined with softer demand on some key routes, strong competition and adverse impacts from government policy (incl. the PED ban, travel restrictions and higher costs from various taxes, fees and charges) the operating environment is likely to remain challenging for the region’s airlines for the remainder of the year.
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