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Cheap oil brings double-edged sword to Mideast airlines

April 20, 2016 Headline News No Comments Email Email

egtmedia59Low oil prices are boosting airline profitability around the world – but for Middle Eastern carriers there’s a major downside.

High prices for oil ensure fat profits for the oil-based companies and economies dotted throughout the Middle East. That means the well-heeled customers of Middle Eastern airlines have money to lavish on premium travel. Low oil prices mean the opposite.

For airlines everywhere else, cheap oil is good news. Delta Air Lines, for instance, expects to save $USD 3 billion in fuel costs this year alone.

“January maintained the strong traffic growth trend seen in 2015, showing the resilience of demand for connectivity despite recent turmoil in equity markets,” said International Air Transport Association (IATA) director general and chief executive, Tony Tyler.

“The record load factor is a result of strong demand for our product and airlines making the most productive use of their assets. Underlying conditions point to another strong year for passenger traffic, with the latest decline in oil prices likely providing additional stimulus for air travel growth.”

Middle Eastern carriers are less fortunate. Three airlines deriving a significant portion of their premium-seat bookings from corporate travel in and out of the Middle East are Dubai-based Emirates – commercial partner of Qantas, Abu Dhabi’s Etihad and Qatar Airways. An article in the Australian quotes executives saying that high-yield bookings are down sharply amid the current oil price collapse.

Emirates president Tim Clark compared oil prices to “a double-edged sword” that had slashed bookings from companies involved in the energy sector.

Qatar Airways chief executive Akbar Al Baker has spoken of the oil price plunge triggering a fall in premium yield and a decline in business travel.

The Australian article conceded that it is difficult to tell quite how hard lower oil prices are hitting Mideast carriers, because “they are all government owned and most disclose few details about costs and revenue”.

There’s no prospect of oil prices rebounding anytime soon. The price of crude oil tumbled as much as 5% at the start of this week, after the Organisation of Petroleum Exporting Countries (OPEC) failed over the weekend to reach an agreement to cap production at current levels, ABC News reported.

Iran is refusing to cut back its oil output. Now that three decades of sanctions on its oil industry have ended, Iran is determined to sell, sell, sell. Iran didn’t even bother to participate in the OPEC meetings.

Written by Peter Needham

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