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- Dubai 05:23 06:36 12:34 15:53 18:25 19:39
Leaving the rough rides of 2009 behind, the Middle Eastern airlines are getting ready to take on yet another challenging year.
There is no doubt the global aviation industry last year faced one of its most turbulent years in history. The Middle East, though equally impacted, has been the most resilient, becoming the only region in the world to have clocked in double-digit growth month after month.
As Iata (International Air Transport Association) revealed last month, the Middle Eastern airlines would see their losses actually shrink to $300 million (Dh1.10 billion). In 2009, the region's carriers lost about $500m collectively.
Compared to that, the global aviation industry has been forecast (by Iata) to lose $11bn in 2009. And the global trade aviation body is predicting a wider industry loss of $5.6bn for 2010, due to yield weaknesses.
Kareem Z Murad, Vice- President, Research, at Shuaa Capital, could not agree more. "I am a little cautious about 2010 – not just about the aviation sector, but across sectors. The impact of global crisis will be still felt in 2010. Having said that, even though I am actually more optimistic about the Middle East aviation sector, the region's airlines are not going to be substantially more profitable in 2010, especially not in the first half of the year. We will continue to see pressure on yields especially first half of 2010," he told Emirates Business.
"The region's airlines may just maintain their current levels of performance but no major improvement in sight," he added.
Abu Dhabi's Etihad Airways, meanwhile, is seeing definite signs of an upturn in passenger travel as well as in the cargo sector, according to the airline's chief executive. "As this continues, we expect to see a corresponding industry focus in 2010 on responsible pricing, allowing yields to return to levels that will enable airlines to move back to profitability," said James Hogan.
He added: "It has been a difficult year for the aviation industry. However, in contrast to other regions, the Middle East market has continued to grow."
Plans remain bullish
Even as yields will continue to be under pressure through 2010, airlines in the region, overall, seem to be quite confident of a productive year. Most airlines are going ahead with their aircraft orders and route expansions as planned.
"In 2010, Emirates will continue to forge ahead with our fleet and a network expansion with three new routes – Tokyo, Amsterdam and Prague. More will follow in the coming months," Richard Vaughan, Emirates' Divisional Senior Vice-President, Commercial Operations Worldwide, said.
The early part of 2010 will also see the Emirates A380 travelling to Jeddah – the airline's first Middle Eastern A380 destination outside the UAE "as well as more aircraft deliveries and further lounge openings".
"We will continue to keep a close watch on our costs and are fortunate that we have the flexibility to act quickly based on changing market conditions," said Vaughan.
For Emirates, 2009 has been a "solid year" that saw new aircraft deliveries, the launch of two new African destinations – Durban and Luanda – and the 21st consecutive year of profit, according to Vaughan.
"This year also saw the opening of a number of dedicated Emirates' lounges, including Johannesburg, Hamburg, Manchester, Dusseldorf, Mumbai and Beijing, bringing our total global lounge investment to well over Dh266m," he said.
Etihad Airways, too, has seen measured and controlled growth in 2009 with its fleet growing to more than 50 aircraft and network to 58 destinations. "This measured growth will continue to be our focus for 2010 as we add flights to new destinations in Sri Lanka and Japan, continue to introduce innovative product enhancements and establish new codeshare agreements to broaden the range of destinations and travel options we offer our customers," said Hogan.
He said while competition for customers remains intense, Etihad is in "a relatively good position" to take advantage of improving economic conditions, "thanks to the significant investment we have made in product and service over the past 18 months".
Among the low-cost carriers, flydubai, which has achieved much in a span of six months of its operation, aims to fly into an equally successful year. The Dubai's budget carrier is due to take delivery of a further seven aircraft in 2010 and grow to serve more than 20 destinations, according to its Chief Executive, Ghaith Al Ghaith.
The airline started commercial operations with flights to Beirut on June 1 and Amman on June 2, closely followed by Damascus on June 8 and Alexandria on June 9. It has since begun flights to a further seven destinations, bringing its total number of destinations to 11.
"2009 was a significant year for flydubai. In this region, aviation still has a lot of room to expand. There is a population of more than 2.5 billion people within a five-hour flight radius of Dubai and many of these people live in areas that are currently underserved by direct air links to the UAE," said Al Ghaith.
The airline has so far taken delivery of six 737-800NG (new generation) aircraft on schedule from Boeing and have signed financing, maintenance and logistics deals worth about $520m. Besides, the airline also moved into its new headquarters near Dubai International airport's Terminal 2.
Forecasting the growth for 2010, Al Ghaith said: "This region has weathered the storms of 2009 far better than other regions. And I expect this trend to continue in 2010."
Sharjah-Based Air Arabia, meanwhile, will also continue to move forward with its expansion plans this year. The airline's 2010 targets include the launch of operations for its third hub in Egypt and opening a budget hotel at Sharjah International airport.
"We will introduce services to more new destinations this year, focusing on key markets where we see the greatest potential. We are also diversifying our revenue streams and are launching a new 300-room budget hotel at Sharjah Airport," Adel Ali, Air Arabia's Chief Executive Officer, told this newspaper.
Further, at a time when the global aviation sector is witnessing unprecedented financial challenges, Air Arabia managed to post positive financial results for the nine months ending September 30, 2009, demonstrating the long-term sustainability of its business model.
The airline served more than 2.96 million passengers during the first nine months of 2009, marking an increase of 14 per cent compared to 2.6 million passengers during the same period a year earlier.
In May this year, Air Arabia launched operations from its second hub in Morocco. The airline currently serves 59 destinations across the world from hubs in Sharjah and Casablanca. Operations at the third hub in Egypt are expected to begin in early 2010, according to Ali.
"The airline industry faced a challenging year in 2009. Middle Eastern carriers lost about $500m collectively, due to a mismatch between capacity and demand, pressure on prices and, correspondingly, net income, he said.
"However, the ongoing consolidation in the sector is a clear sign that carriers are doing their utmost to adapt to this new reality. Indeed, the global wave of mergers and acquisitions in the sector began to take shape even before the economic downturn started, and will probably gather further pace in 2010."
What lies ahead
With oil prices going up, there will be more pressure on the cost of both legacy carriers as well as budget carriers in2010, which will "result in fuel surcharges and higher fares", warns Murad of Shuaa Capital.
"What we still have not seen in the Middle East so far is a clear distinction between low-cost carriers and legacy carriers as is apparent in Europe and the West. In 2010, we will see that change in this region. The distinction between the two segments would become more apparent," he said.
"In 2010, we will continue to see a shift from legacy carriers to low-cost carriers, which we witnessed in 2009. But it would be more pronounced."
In 2010, the regional aviation sector is also likely to witness the first indicators of "consolidation", according to Air Arabia's Adel Ali. "It is a healthy trend that will stabilise the market and indicate its increasing maturity," said Ali.
He said: "Likewise, gradual liberalisation will also continue. Regional carriers will see environmental issues rising higher on their agenda, including reduced emissions and improved fuel efficiency. Despite the challenges that lie ahead, however, Air Arabia continues to maintain its commitment to sustained expansion and growth."
Challenges to be tackled
While 2010 looks to bring in a lot of fresh trends into the Middle East aviation market, there would also be challenges on the way to growth.
"As flydubai continues to expand so rapidly one of our main challenges will be to continue to attract and recruit the right number and calibre of staff to ensure we can continue to offer our customers the excellent levels of service on board that we have started with," said Al Ghaith.
Recognising the challenges that lie ahead for the aviation sector in the region, Air Arabia's Ali, said: "We will focus even more on our operational efficiency to ensure that we can continue to provide unparalleled service, while never compromising on delivering value to our shareholders."
He said Air Arabia continues to focus on keeping costs low, passing on those savings to passengers and offering compelling value propositions for customers.
New licensing law
A strict new licensing regime, being currently developed by the UAE General Civil Aviation Authority (GCAA) to regulate foreign passenger airline and airfreight operations and ensure safety and security will be implemented in 2010, according to Saif Mohammed Al Suwaidi, Director-General of GCAA. And its introduction will be followed by the publication of a blacklist of airlines that are banned from using the country's aviation services.
Al Suwaidi recently told this newspaper that 30 operators were banned from operating in the country and more would be outlawed in future if they failed to comply with regulations and standards. He said the draft law was being reviewed by a specialist technical committee and was close to completion.
"The key aim of the draft is to ensure the highest security and safety requirements for airlines that acquire licences to operate in the UAE or use the country's airspace," he said.
Rise in M&A activity
There will be an increase in mergers and alliances this year in the aviation field in the Middle East, according to a recent survey by global business research company Terrapinn.In its survey – Aviation Outlook Mena Survey 2010 – Terrapinn revealed that more than 50 per cent of the 1,000-plus respondents are of the view that there would be an increase in mergers and alliances in the region in 2010, given the slowdown in global air travel industry due to the economic crisis.
"The commentary attached to these responses suggest this would not come from the GCC but more from emerging carriers looking to grow such as Royal Jordanian, Egypt Air and Turkish Airlines," Matthew Wallhead, General Manager, Terrapinn (Dubai), said.
As for the 2010 outlook projected for key Middle Eastern carriers such as Emirates, Etihad Airways and Qatar Airways, Terrapinn predicts a strong outlook.
"We project a very strong 2010 outlook for these carriers. They have invested in key infrastructure and a superior level of service in economy cabins, which makes it attractive to people who are no longer flying in the premium cabins," said Wallhead.
"They also appear to have the flexibility in their business models to adapt to dips and spikes in demand which is critical in the current trading environment," he added.
LCCs, on the other hand, will continue to diversify their offering with an unbundled pricing structure that positions them very well compete for market share on regional routes in 2010, he said.
And finally, with regards to the aircraft financing requirements for this region's airlines in 2010, Wallhead said capital markets will become "more open" and aircraft do remain an attractive asset class. "The fact that aircraft financing is asset-backed fits perfectly with Shariah compliant financing. So, maybe we will see an increase in that area," he said.
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