Global airlines, including those from the Middle East, are expected to show a dramatic fall in profits for the second quarter of the year.
The forecast comes as carriers continue to be hit by rising jet fuel prices, according to the International Air Transport Association (IATA). Early figures from a sample of 16 airlines show they will collectively report a decline of nearly US$2 billion (Dh7.34bn) in profits to US$1bn, compared with the same quarter last year, IATA said yesterday.
"Airlines everywhere have been battling with high fuel costs," said Samir Murad, an analyst at National Bank of Kuwait. "The Middle East airlines pay levels similar to the global rate, so they are affected in the same manner."
But the dire prediction from IATA on global and Middle East airlines seems out of kilter with previous results from the UAE's two biggest carriers, Emirates Airline and Etihad Airways.
Emirates' profits soared 52 per cent to Dh5.4bn in the 12 months ending in March as it bucked global economic gloom, high fuel prices and regional unrest.
Dubai's long-haul carrier reported a 14.5 per cent rise in passenger traffic, while numbers at Dubai International Airport overall are forecast to increase by 7.2 per cent a year until 2020.
However, North American, Asian and Latin American airlines are all showing declines in profits, while European carriers are reporting slight increases - due to particularly low figures last year, part of which was as a result of the Icelandic ash cloud disruption.
Only last week, IATA claimed Middle Eastern airlines were falling behind their global peers in terms of customer demand.
"For the second consecutive month, both demand and capacity increases by Middle East carriers have fallen behind those of Europe and Latin America," the industry body, based in Geneva, said on Friday.
Air Arabia,the Middle East's biggest low-cost airline, yesterday reported second-quarter profit rose to Dh49.6m from Dh48.7m a year earlier. Jezeera Airways will announce figures next week.
"We are about to see how Middle East airlines fare," said Mr Murad. "This will give an indication on how others have done."
Although global passenger traffic is increasing at a rate of between 4 and 5 per cent this year, IATA said airlines' profits were being hurt by rising fuel costs that rose beyond $130 a barrel last month.
Airline passenger increases are also being outpaced by capacity, which means occupancy levels on planes around the world are 1 per cent lower than the highs of last year.
The trade body said share prices were down about 15 per cent this year.
"We all know the profits will be affected by rising fuel cost prices, whether the airlines can pass on the cost increases to customers is the question," said Mr Murad.
Despite that, Etihad is on track to break even this year after it recorded its first ever operating profit in the first quarter, on the back of soaring revenues.
rjones@thenational.ae
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How to get there
Emirates (www.emirates.com) flies directly to Hanoi, Vietnam, with fares starting from around Dh2,725 return, while Etihad (www.etihad.com) fares cost about Dh2,213 return with a stop. Chuong is 25 kilometres south of Hanoi.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
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In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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Tuesday's fixtures
Kyrgyzstan v Qatar, 5.45pm
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