Led by Cathay Pacific Airways Ltd.’s strongest gain in six years, shares of Chinese carriers surged Thursday. Just a sliver off record highs and rising 24 percent in a year is the Bloomberg World Airlines Index. And under siege for years by their unlisted rivals in the Persian Gulf have been the members of the association. The International Air Transport Association said this week that set to hit that target for the third year running are the global industry earnings which traditionally haven’t covered airlines’ costs of capital.
Even so, looking distinctly sickly is one corner of the aviation market. According to IATA, making the region the least-profitable worldwide, Ebit margins at Middle Eastern carriers will dip to their lowest level in at least six years during 2017. According to IATA, less than half its pace in 2012, passenger traffic growth will be just 7 percent this year, as the fleet of aircraft that Emirates, Qatar Airways Ltd. and Etihad Airways PJSC have unleashed on the skies is being recalled to port.
For the woes of Gulf carriers, there’s an obvious short-term explanation. A spanner in the works of the region’s attempt to turn itself into the world’s aviation hub have bene put by the broiling tensions between Qatar and an alliance of rival Arab nations.
After Saudi Arabia, Bahrain, Egypt and the United Arab Emirates banned overflights and cut maritime links, Qatar Air, which has been musing about setting up a carrier in India to connect the Gulf’s 8.5 million strong Indian workforce to their motherland, has been blockaded. In the long term, it won’t be a workable solution to rout flights via Oman.
Deena Kamel of Bloomberg News reported that revenue at the Doha-based airline could fall 30 percent as a result. Loss of 15 percent of revenue as well could be posted each by Emirates and Etihad, despite being on the majority side of the dispute.
Things had been looking tougher even before the Qatar-Saudi border was sealed. Emirates Chief Executive Officer Tim Clark has voiced thinly-veiled skepticism about the motives of the Trump administration’s ban on laptops in the cabins of flights from Arab countries and Turkey as it has dealt a targeted blow to the Gulf carriers.
That’s probably warranted. Plans to widen the ban to Europe and elsewhere remain up in the air three months after the laptop ban was introduced, even as U.S. airlines have been on the attack over Arab airlines’ incursion into their home territory. Widening the restrictions to flights originating in the U.S. is not being suggested by any one.
Etihad CEO James Hogan has been stripped of management authority ahead of his formal departure next month and the airline is having second thoughts about its rapid expansion under him. And in disarray is the system of global alliances Hogan built.
Sources said that after years of losses, the company is close to hiring financial advisers to look at selling its stake in Air Berlin Plc. It can instead further extend its ties with the insolvent Alitalia SpA. While Virgin Australia Holdings Ltd. remains at best fitfully profitable, only Jet Airways India Ltd. is really firing of its other stakes.
(Adapted from Bloomberg)