AS A REPORT CALLS FOR AIRLINES IN THE MIDDLE EAST TO COME CLEAN ABOUT FINANCING WE KEEP AN EYE ON FUEL PRICES

Dino D'Amore
By Dino D'Amore December 15, 2010 10:34

AS A REPORT CALLS FOR AIRLINES IN THE MIDDLE EAST TO COME CLEAN ABOUT FINANCING WE KEEP AN EYE ON FUEL PRICES

A report commissioned by GDS provider Amadeus and carried out by Abu Dhabi based Insights Management has called on Middle Eastern airlines to show clearly that they are independent from government subsidy.

The report, entitled “Securing the Prize for the Middle East, by Abu Dhabi-based Insights management consultancy” issues recommendations it said would improve transparency in the region’s airline sector and thus help the region secure a position as a dominant global hub.

The report calls for the region’s carriers to show their independence from government subsidy as part of a move to greater financial transparency. Airlines like Emirates, Qatar and Etihad have repeatedly insisted they are independent of government and have to stand alone as commercial enterprises.

So, will the likes of Emirates open up their books for all to see and in the event most likely create more questions? Of course not, so what on earth can Tim Clark do other than confirm time and again that Emirates is not receiving government funding. A reaction to this report from Hogan at Etihad and Clark at Emirates should be most interesting.

The report also calls for common regional policies on visa regulations, immigration and air control, citing that the number of tourists in the region is set to double to 136 million by the end of the next decade.

“The Middle East already connects more major global destinations via a single flight than any other hub,” said Antoine Medawar, Amadeus’s vice president for the Middle East and North Africa.

It is hard to see what this report does for Amadeus other than confirm what airlines know already. It has long been suspected that flag carriers in the Middle East are enjoying subsidised fuel and other benefits. Any confirmation of that will prove Emirates and others are not receiving state funding would be significant but even then what can anyone do about it if they are other than sit on the side lines and wish it was them?

Meanwhile, as mentioned a few weeks ago, fuel surcharges are back. Fuel hedges should be considered fast by many airlines. Oil is still threatening the $90 mark and with the northern hemisphere gripped by cold weather it is likely that the six month outlook of $100 a barrel could be easily achieved. As global inflation also starts to rise we must consider 2011 to be a very hard year to navigate for all airlines. Those airlines that have not been able to shore up finances in 2010 will have problems funding deliveries which could well lead to cancellations or more sale and leasebacks of aircraft on order.

Indeed, IATA has stated that we should brace for a 40% decline in 2011. That’s how much the airline industry’s profit is projected to shrink next year, on the back of slower economic growth, higher fuel costs and austerity measures. Net income will drop to $9.1 billion in 2011 from $15.1 billion this year. Sales continue to grow, but low fares are squeezing profit margins. 2010 has been the eye of the storm for many regions.

Our new magazine Airline Economics will launch in January 2011, in it we will be following everything that affects airline margins in detail in print and online with editorial knowledge that you currently cannot find anywhere else, look out for your copy.

Dino D'Amore
By Dino D'Amore December 15, 2010 10:34
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