Seat belts please, turbulence ahead

After cruising smoothly through 2007, the global aviation sector alongwith the Middle East industry started hitting rough skies starting January 2008 when the oil prices hit $100 a barrel mark for the first time.

Six months into the clouds, the winds turned turbulent with oil prices jumping to a record high of $147 a barrel in July.

From one extreme to another, the oil prices then fell to an incomprehensible five-year low of $32.40 per barrel in the last week of December. And if that was not enough, the world was hit by the serious financial slump in the second half of the year.

The aviation sector is still waiting for the winds to clear with passenger traffic declining at a rapid pace.

But while major airlines across the globe either folded wings in 2008 (about 30 airlines, including all only-premium class carriers went out of business) or are seeing their profits plunge, the Middle Eastern airlines are resilient to the changes, maintaining a positive outlook. They continue to expand their routes network, besides keeping their aircraft order intact.

As aviation experts point out, the Gulf airlines are "extraordinarily well placed to be the beneficiaries of a prolonged economic downturn. They will emerge from difficult times with their global position greatly entrenched". For instance, the three major airlines in the region – Emirates, Etihad Airways and Qatar Airways – are going ahead with developing their route networks as planned while securing more finances for the new aircraft deliveries.

"Middle East airlines have tremendous growth plans despite the downturn. While Emirates had a great growth in 2008, its Etihad's and Qatar's first downturn," Chris Tarry, a UK-based aviation consultant at Ctaira, a British aviation consulting firm, told Emirates Business. As he rightly pointed out: "2008 was a year of realisation. And 2009 will be a year of actions."

DECLINING TRAFFIC 

The Middle East is not isolated from the global slowdown, though it might be better placed than the rest of the world.

The region's airlines are taking a direct hit in its passenger numbers, especially in the area of premium traffic. Emirates, for instance, has witnessed a weaker demand of late, according to Emirates' President Tim Clark.

The airline's October seat factor fell 1.8 per cent from a year earlier, but the carrier remains optimistic. "We are running at about 1.8 per cent below what we were in October 2007 but on a much higher capacity," said Clark, adding that Emirates' average seat factor rests between 70 and 77 per cent.

"The region's airlines will find it difficult to adjust capacity fairly quickly. In short-term, they will have to fight harder for the traffic," said aviation consultant Tarry.

Overall business and first-class air travel, meanwhile, dropped sharply in September due to the global financial crisis, according to the airline industry body International Air Transport Association (Iata).

It said the premium travel worldwide declined by nearly seven per cent in October indicating the latest sign of the slowdown in travel demand. Iata said the ongoing financial turmoil is likely to continue pinching premium travel, the most lucrative sector for airlines. The Middle East's air traffic, however, increased 5.6 per cent in November 2008 from a year earlier after falling for the first time in September, according to Iata.

However, the region remained well below the double-digit growth rates experienced over the first half of the year.

"With no end in sight for the worsening global economy, the 2008 gloom will carry over into the new year. Relief in the oil price has been outstripped by the falls in demand and capacity cuts are not keeping pace. The industry is back in intensive care," said Iata's Chief Executive and Director-General, Giovanni Bisignani.

Airports Council International, on the other hand, noted that international traffic growth slowed markedly in the Middle East where the dominant international airport, Dubai International, only saw an increase of 2.8 per cent in August.

The UAE's total air traffic volume in 2008, meanwhile rested at 489,369 air traffic movements with a growth of 10.30 per cent comparing to 2007, according to the General Civil Aviation Authority.

DROP IN AIRFARES 

Emirates revised its ticket prices downwards twice in 2008 – both the times in the second half of the year.

"In recent months we have adjusted our fares downwards in line with the lowering of fuel prices," said an Emirates' spokesperson.

In October, the airline reduced fares by between seven and 35 per cent for about 16 destinations on its India, Europe, Middle East and Far East sectors, owing to further reduction in aviation fuel prices.

It announced its first round of fare revision in August on the back of lowering oil prices to more than 20 cities in Europe, the Far East and the Middle East.

Etihad, on the other hand, has not reduced its fuel surcharges since summer 2008 and said that has no immediate plans to do so.

THE DOWNTURN 

The airline industry was seriously alarmed earlier in December when Iata said in its forecast for 2009 that the industry may lose $2.5 billion. (Dh9.1bn). In 2008, global airlines look set to return total losses of $5bn.

The Middle East airlines will see losses double to $200 million (Dh735m) in 2009. "The challenge for the region will be to match capacity to demand as fleets expand and traffic slows – particularly for long haul connections," said chief executive Bisignani.

Emirates' net profit for the first six months of its financial year ended September 30, 2008, dropped a dramatic 88 per cent to Dh284 million due to high oil prices.

Globally, share prices of airlines across the world fell 35 per cent in 2008 since the collapse of the banking sector in September, underperforming the market.

THE UPTURN 

Emirates is confident of its second half results. "Emirates is confident of a strong second-half financial performance as fuel prices relent and demand continues to hold," said Clark.

The airline's new routes for 2008 included Cape Town, Kozhikode (Calicut), Guangzhou (China), Los Angeles and San Francisco.

Etihad Airways, too, enjoyed a record-breaking 2008 having carried more than six million passengers with 75 per cent average aircraft capacity. It also launched six new routes – Beijing, Minsk, Almaty, Kozhikode, Chennai and Moscow.

Dubai International Airport handled 18.46 million passengers in the first half of 2008, registering a growth of 13.8 per cent over the first half of 2007. The world's largest airport – Al Maktoum International (a part of $33bn Dubai World Central) is on schedule. Dubai Airports' CEO Paul Griffiths, said in October the first passenger flights from Al Maktoum International could begin from autumn 2009.

To add to the boom, Indian carrier, Jet Airways launched flights to Dubai in August. "Our Dubai operations from October to December have been good, looking at the customer feedback and support from our travel trade partners," said Shakir Kantawala, Jet Airways' Regional Manager – Sales & Marketing for Gulf, Middle East & North Africa.

AGGRESSIVE FLEET EXPANSION

With regards to fleet expansion, Etihad Airways placed a record order in July worth $43bn with Airbus and Boeing on the opening day of the Farnborough International Airshow, dispelling the gloom surrounding the global aviation industry.

The carrier signed a contract for up to 205 Airbus and Boeing aircraft.

Flydubai, Dubai's first budget carrier getting ready to take off in mid-2009, also made a historic $4bn aircraft order at the same airshow for 54 Next-Generation 737-800 aircraft from Boeing.

Emirates purchased 60 wide-bodied aircraft in July to support the expansion of its international route network. The order comprised 30 Airbus A330-300s and 30 Airbus A350 XWBs (extra wide bodies).

Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates Airline and Group, said: "We are forging ahead with our expansion plans and the A330-300s and A350 XWBs will enable Emirates to continue its growth using modern fuel-efficient aircraft."

Sharjah-based budget carrier, Air Arabia, in November signed a contract with European manufacturer Airbus for 10 additional Airbus A320 aircraft to serve its new hub in Morocco (to open early 2009) in a deal worth about $770m in list prices.

Doha-based Qatar Airways, meanwhile, ordered four additional Airbus A321s, and placed options for two more at 2008 Farnborough International Airshow. The airline's total aircraft orders rest at more than 200 aircraft worth over $30bn.

TERMINAL 3 OPENS; EMIRATES GETS 3 A380S

The $4.5bn Emirates Terminal 3 at Dubai International opened its doors on October 14. Once fully operational, T3, Concourse 2 and Concourse 3 will have a passenger handling capacity of 43 million, with the complex having a total of 23 A380 contact gates, according to Dubai Airports' Griffiths.

The new concourse is expected to boost Dubai International's capacity from 40 million to more than 60 million travellers a year, while the opening of a third concourse in 2011 will add another 15 million, taking the airport's passenger capacity to 75 million a year by 2015. The year also marked the arrival of Emirates' first three superjumbo A380s of the total 58 on order.

With its first A380, which arrived in July, Emirates made its debut flight to the US on August 1 to New York-JFK. The airline received its second superjumbo in October and the third one in November, with two more expected by March 2009.

Emirates served its second A380 destination London-Heathrow on December 1, with the third one – Sydney-Auckland – expected to launch in February 2009.

LAUNCH OF DUBAI'S FIRST BUDGET CARRIER

March saw the Government of Dubai announcing the set up of Dubai's first budget carrier, Flydubai.

To be initially supported by Emirates during the set-up period, the airline will not be part of the Emirates Group operations, said Sheikh Ahmed, Chairman of the new low-cost airline.

Ghaith Al Ghaith, who relinquished his role at Emirates' as executive vice president commercial operations worldwide, was chosen to be the chief executive of the budget carrier.

The airline, having placed an order for over 50 aircraft, is scheduled for launch in mid-2009, will operate regionally within the GCC area and surrounding countries, according to Al Ghaith.

ABOLITION OF AGENCY COMMISSION

The year was not one of great news to travel agents as well, with most major Gulf airlines abolishing their base seven per cent agency commission to tackle the impact of rising fuel prices in the first half of the year.

While Emirates and Qatar Airways brought it into effect on October 1, Etihad said it would implement a zero per cent rule in January 2009. Bahrain-based Gulf Air, too, is to follow suit.

BOOM IN BUSINESS AVIATION 

Beating the current economic slowdown, the Middle East business jet market is aiming to hit a $1bn (Dh3.67bn) mark by 2012, according to Ali Al Naqbi, Founding Chairman of the Middle East Business Aviation Association.

He said that the Middle East business jet market is poised for year-on-year growth of 12-15 per cent for the next five years at least, highlighting that business jet fleet has jumped by 30 per cent in the last one year in the Middle East.

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