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>

Emirates Airlines: Brief Introduction

               fig 1 : fly Emirates logo ( source: telguprofessional.blogspot.com)                                                           

Dubai based Emirate airlines, is among the most successful airlines in the world. This largest airline from the Middle East had played a vital role in shaping up the Emirate state from a, oil rich Emirate to a global tourism destination. In the following blog, author will attempt to give a brief description comprising of, history, profile, strengths, corporate strategy and areas of concern, for the airline.

History:

After its independence in 1974, Dubai along with other Emirates were served by Gulf Air, but since the very beginning  relationship between the airline and Dubai was tensed, owing to Dubai’s unwillingness to abandon its open skies policies. In 1985 when Gulf Air reduced its flights to and from Dubai by 2/3 rd, the ruling elite at Dubai realized, to have an exclusive airline for Dubai , hence Emirate Airline (having just two carriers at that time) was born with   an initial investment of US $ 10 Million from the government. The 1st ever flight departed to Karachi on 25th October. In 1987 it started its European operation with flights for London and Frankfurt. A perfect exemplar of phenomenal success stories, Emirate airline had kept on almost doubling itself every three years, growing with an average growth rate of 25% annually. Presently not only it is serving 100 destinations across 60 countries but had also won myriad prestigious awards and accolades. (Andreas E, Alexander K)

Facts and figures (2010)

• Fleet size: 152 ( Boeing: 91, Airbus: 61) + 18 on order/ planned (Boeing:5, Airbus: 13) (planesspotters.net, 2010)

• Average age of the fleet : 6.5 years (planesspotter.net, 2010)

• Destinations served : 100 destinations, 60 countries

• Financials: revenue: US $ 11.8 Billion, profit: US $ 964 Million ( a 416 percent increase over 2009) (emirates.com, 2010)

• Employee strength : 36, 000 approx

• International passengers: 25.9 Million (2009-10), 7th highest in the world in terms of number of passengers. ( arabiansupplychain.com, 2010)

• Number of flights per week : 2400

• Head office: Dubai

• Key people: Chairman and CEO: Ahmed Bin Saeed Al Maktoum, President: Tim Clarke

Parent Company

Emirate airlines, is the part of the bigger conglomerate namely Emirate group, with a range of individual companies, serving various verticals of international travel and tourism industry. Emirate airlines comprises of; Emirate airlines, the biggest airline of Middle East; Dnata, an aviation service company providing ground handling services; Emirates Holidays, providing tailor made holiday packages to over 100 destinations; Congress Solution International , a PCO (professional conference organizer) offering a wide range of services; Arabian Adventures , offering wide range of overland adventure programs such as deep sea diving, desert safari etc; Wolgan Valley Resort & Spa, an exclusive conservation-based resort bordering the Greater Blue Mountains World Heritage Area in Australia; Mercator, Emirate airline’s IT solution provider, is a leading supplier to IT solutions across the globe; Emirate’s engineering, maintaining the expansive fleets of Airbus and Boeing of Emirate airline as well as seven other airlines through 3rd party maintenance contract ; Alpha flight Group Limited, an in flight catering company employing more than 6000 people and serving 58 airports across 11 countries. Beside these, Emirate group also has a wide range of joint ventures such as; Emirates Flight Catering, Emirates Leisure Retail, MMI, Oman United Agencies etc. Emirate Group, employing more than 40,000 individuals from 160 nationalities is a state run entity, managed by Dubai Investment Holding. (emirtaesgroupcareer.com, 2010)

Strengths (Andreas E, Alexander K)

• Political support: Emirate Airlines had been  very crucial with respect to Dubai’s  strategy of transforming itself into world class tourism cum commercial hub, hence the airline was always up on the agendas of the ruling elite of the Emirate.

• Strategic location: Dubai’s is strategically placed between the crossroads of North and South as well as East and West, there is hardly any major agglomeration in the world which is not with in 8000 miles from Dubai. Some 3.5 Billion populations reside with in an 8hr flight from Dubai. The strategic location had played a major role in transforming Dubai into a a very successfull tourist destination. Strategic location coupled with easy immigration policies (transit travelers do not require clearing emigration at Dubai airport) have also helped Emirates Airlines being preferred by many transit travelers.

• Indirect subsidies: it is said that Emirates had been indirectly subsidized by the government of Dubai in the form of almost no charges being paid for various at Dubai airport, such as, ACT, noise and security charges.

• Top class service and high labor productivity: another competitive advantage for Emirates had been its ,great services in almost all the class and  high labor productivity. A study done by UBS in 2005 showed that Emirates per unit cost was 40% lower than that of KLM.

• Tax free regime: the tax free regime at Dubai had not helped in adding to the over all profitability of the airline but also in attracting high quality human resources from all across the globe.

Corporate Strategy (Andreas E, Alexander K)

• Focusing on healthy mix of both O & D (origin and destination) as well as transit travelers.

• Focusing strongly on cargos. 20% of the revenue comes from cargo for Emirates Airlines.

• Along with organic growth strategies, it had adopted inorganic ones as well ,such as having a 43.6% stake in Srilankan Airlines.

• Providing high quality services in all classes.

• Maintaining high frequencies , serving every location at least twice weekly.

• Making strong presence in underserved markets such as Glasgow, Newcastle, Manchester, Hamburg, Cochin, Kolkata etc.

• Making strong presence in markets such as Sub Saharan regions that have been so far unconnected to the global air traffic network due to lack of a effective national carrier.

• Markets itself very strongly, though over all marketing budget is confidential but is expected to be 3-5 % of the overall revenue. Out of the wide range of PR and marketing strategies used, sponsoring major sporting events are at the fore front of its branding agendas.

Areas of Concern:

• Politically unstable Middle East: the present unrest in Middle East poses serious concern for the Emirates Airlines. Though UAE is enjoying a peaceful political climate, but the uprising in various parts of the gulf and Middle East, will surely result in apprehensions, among the travelers in visiting the region.

• Emerging carriers from the region such as Qatar Airways and Etihad Airways are posing tough competition to Emirates Airlines. Though yet to break even, their strategy of matching Emirates level of service in comparatively lesser price is can be a source of serious threat to Emirate airways.

Reference:

1> Andreas E, Alexander K, how sustainable is Emirates business model, available at < http://www.aerlines.nl/issue_38/38_Knorr_Eisenkopf_Emirates_Business_Model.pdf >

2> Planesspotters.net, 2011, Emirates: details and plane history , available at http://www.planespotters.net/Airline/Emirates

3> Emirates.com , 2010, emirates group makes record profit this year, available at < http://www.emirates.com/fr/english/about/news/news_detail.aspx?article=567011 >

4> Arabiansupplychain.com, 2010, top 10 international passenger airlines, available at < http://www.arabiansupplychain.com/article-4997-top-10-international-passenger-airlines/1/print/  >

5> Emiratesgroupcareer.com, 2010, Emirates Group Company, available at http://www.emiratesgroupcareers.com/english/about/companies/  Default.aspx

6> Andreas E, Alexander K, how sustainable is Emirates business model, SWOT analysis available at < http://www.aerlines.nl/issue_38/38_Knorr_Eisenkopf_Emirates_Business_Model.pdf >

7> Andreas E, Alexander K, how sustainable is Emirates business model, Emirates business model, available at < http://www.aerlines.nl/issue_38/38_Knorr_Eisenkopf_Emirates_Business_Model. pdf