Analysis of airline industry of Middle East

  fig 1:Qatar Airways Flight Stewardess  (source: mynetbizz.com)                                                                        

Airline industry across the globe is facing the sharp pinch of rising petroleum price along with global economic downturn. In spite of this Middle East's airline industry has shown tremendous growth  in the past few years and the Middle East's airline industry is poised for strong growth in the coming time. The leading airlines in the region which is marked by both luxury as well as low cost carriers are Emirates Airlines, Etihad Airways, Qatar Airways, Middle East Airlines (national carrier of Lebanon), Royal Jordanian Airways, Air Arabia, Oman Airways ,Gulf Air etc. According to recent reports by IATA (International air traffic association) Middle East along with North Africa is the fastest growing region in the world for air traffic with capacity increasing by 13.2% in the 1st seven months of 2010. (albawaba.com, 2010) The following blog will do a detailed analysis consisting of the recent trends, way ahead , areas of concerns and recommendations for the airline industry in the region.

Current situation (Embrarercomercialjets.com, 2011) $:-

• The region has an overall real GDP of 1.1 Trillion and population of 1.96 Million (Both factors play important role in deciding volume and profitability of air travel)

• The passenger demand: 278 Billion RPK (revenue passenger kilometers) in 2009. #

• Total passengers: 72 Million.

• Total size of the fleet: 665

• Number of local airlines: 38

• Number of airports: 112

• Region’s three intercontinental hub:- Doha, Dubai, Abu Dhabi

• In 2009 the international demand in service showed a positive growth of 11% compared to 2008. Latin America with a growth of 0.3% was the only other region that showed positive growth.

• Airlines in Middle East have also benefitted from capacity cut done by some European airlines.

• Emirate Airways is still the leading and the most profitable airline in the region followed by Etihad and Qatar Airways. Though both of them are yet to break even. In the last year’s Paris show all the leading airlines from the region that is, Emirates, Etihad, Qatar airways and gulf air had purchased new aircrafts there by indicating further expansion plans on their part.

Favorable factors for the airline industry in Middle East region:-

• Some places like Dubai, Doha, Muscat, Abu Dhabi and Kuwait in the region had shown unprecedented growth in the past two decades.

• The region is rich in oil resources required as fuel for  airplanes.

• Middle East is strategically located at the cross roads of West and East, North and South. This makes it a suitable location for intercontinental travel.

• The GCC (Gulf Cooperation Council) comprising of Saudi Arabia, Kuwait, UAE, Qatar, Oman, Bahrain etc have huge expatriate population. This gives a great boost to the airline business in the region.

• It is home to one of the youngest population in the world with average age ranging from 17 to 31 for most of the countries. (embraercommercialjets.com)

• All sorts of tourism such as leisure, business and cultural tourism are growing very fast in the region. Dubai is considered as one of the top 10 destinations in the world where as various other places like Abu Dhabi, Muscat, Kuwait, Jordan etc are catching up very fast.

The way ahead for Middle East:-

• Airline travel industry is poised for a strong growth in the Middle East region. According to Airbus between now and 2023 airlines in Middle East and North Africa will be buying 1000 new aircrafts worth 124 Billion US Dollars. (Aviation business, 2010)

• Embraer expects the RPK of the region will increase by 8.0% in the next 10 years and 6.5% over the next 20 years. It also predicts between 1795 airplanes consisting of 1735 jets and 60 turboprops will be purchased over the next 20 years. (Embrarercomercialjets.com, 2011)

• The region is expected to handle 400 Million passengers by 2020. In order to handle such a huge volume of passengers the region is planning to invest 90 Billion US Dollars in airports expansion projects. (Dubaiinformer.com, 2011)

• Economic growth, expatriate workers, young average age of the population, growing tourism sector will be some of the driving force for the airline industry in the region.

Areas of concern (Tim Clarke, 2010)

• The airline industry in the region is highly regulated. Most of the airlines are large state run airlines and hence many states are unwilling to open the market there by hampering efficiency.

• 80% of the flying zones in Middle East are restricted for military use there by leading to lot of non fly zones in the region.

• Intra region trade is very low at 10% compared to 40% and 50% in Asia and Europe respectively.

Recommendation (Tim Clarke, 2010)

• Rationalization of routes which will reduce unnecessary diversion thereby saving time and money.

• More liberalization and deregulation of the market which will result in ,easier investment and access to the market.

• Regional cooperation in routing and air traffic can increase the efficiency of airline industry in the region by many percentage points.

• Opening up the airline market to bigger competition along with rationalization of air traffic will compliment investments made in fleets and airports expansion projects.

$ the given data are for the year 2009

# According to moneytermsuk.com Revenue passenger kilometres (RPK) is a measure of the volume of passengers carried by an airline .A revenue passenger-kilometre is flown when a revenue passenger is carried one kilometre.

Reference:-

1> Albawaba.com, 2010, MENA Region Is Fastest Growing Region For Air Traffic In The World With 13.2% Increase In Capacity, available at < http://www1.albawaba.com/transport/mena-region-fastest-growing-region-air-traffic-world-132-increase-capacity&gt ;
2> Embraercomercialjets.com, 2011, Market outlook 2010-2029, P-35, available at http://www.embraercommercialjets.com/img/download/248. pdf
3> Embraercomercialjets.com, 2011, Market outlook 2010-2029, P-35, available at http://www.embraercommercialjets.com/img/download/248. pdf
4> Aviation business, 2010, media pack.
5> Embraercomercialjets.com, 2011, Market outlook 2010-2029, P:-35-36, available at http://www.embraercommercialjets.com/img/download/248. pdf
6> Dubaiinformer.com, 2011, Middle East to invest $90b on airports, expansion, available at < http://dubaiinformer.com/15224/middle-east-to-invest-90b-on-airports-expansion/&gt ;
7> Tim C, 2011, Opportunity knocking for Middle East liberalization, Open sky part 8, Available at < http://www.emirates.com/english/images/Issue%208%20-%20OpenSky%20October_tcm233-612121. pdf>
8> Tim C, 2011, Opportunity knocking for Middle East liberalization, Open sky part 8, Available at < http://www.emirates.com/english/images/Issue%208%20-%20OpenSky%20October_tcm233-612121. pdf>