‘Middle East will gain more market share’
If there is one man who can talk with authority on the future of aviation, it is Giovanni Bisignani, the 61yearold Director General and Chief Executive of the International Air Transport Association, or IATA. Spearheading the industry’s growth since June 2002, when he joined the Geneva headquartered IATA, Bisignani’s agenda is to enhance safety, improve efficiency and focus governments on the long term issues that determine aviation’s viability. He is passionate about liberalisation and a commonsense approach to issues such as the environment and taxation.
Bisignani’s airline experience includes five years at the helm of Alitalia as CEO and Managing Director, during which time he also served on the IATA Executive Committee and was Chairman of the AEA (Association of European Airlines). During his wide ranging business career, Bisignani has held various high level positions at the energy company ENI and the Italian industrial conglomerate IRI Group. He served as President of Tirrenia di Navigazione, the largest Italian ferry company and as CEO and Managing Director of SM Logistics, a group of logistics and freight forwarding companies, partially owned by GE Capital.
In an interview with Business 24|7, Bisignani discusses the future prospects for Middle Eastern airlines, the challenges they face today and the path they need to take going forward.
How profitable do you see Middle Eastern airlines becoming in the next few years?
We expect the Middle East to sustain its annual profitability levels of $200 million (Dh734m). Though the region’s growth is on an upward curve, profitability is more difficult to attain. You have some extremely profitable airlines such as Emirates with returns of 10 per cent or more. It is clearly among the most profitable airlines in the world. At the same time, there are other loss making airlines. So it is uncertain whether the region will grow in terms of profitability as fast as it will in terms of traffic and capacity.
What kind of a future do you see for airlines in the Middle East?
I said a few weeks ago the Middle East is gaining market share and it is an important region. The region is still not at the level of profitability this market share represents. But when you are growing you always have those kinds of problems. For example, in Asia, airlines have added 42 per cent more capacity and that is the reason why yields are falling. We have forecast $700m (Dh2.5bn) profit for Asian carriers this year. That is due to the increased capacity.
In absolute numbers, growth in the Middle East is not too high but the region is posting large percentage growth. Why?
In comparison with international traffic or passenger growth, the Middle East is growing at about seven to eight per cent of the total world market, whereas AsiaPacific will be growing at about 25 per cent annually. So the Middle East is still low. But the good news is it is growing very fast from such a small number. As far as capacity growth is concerned, however, Middle Eastern carriers have 3.5 per cent of the global market right now and this is growing very quickly; it is nearing six per cent. There is already a big increase in capacity with a large proportion of total aircraft orders worldwide destined for the Middle East.
Is the region facing the danger of overcapacity?
The danger is present. It depends on how the carriers handle it. A plane is now a good asset to buy. It starts becoming a problem when you have to put it into service.
Why did you choose the Middle East to be a model region for security?
Security is still a costly and uncoordinated mess. IATA is looking to launch an initiative to harmonise airport security across the region, beginning with the Gulf states. Technology will play a big role here. The Middle East has an incredible opportunity – new airports, new technology. Let us try to implement a certain kind of harmonised set of rules in order to make the passenger experience more pleasant.
If we can combine the biometrics and the identification of the passenger, and all those sorts of things, and share that data not with just airlines but also with immigration, it would be a great opportunity. My expectation is that one is able to go through immigration with just one fingerprint and board the plane also with just one fingerprint, without using the boarding card. We chose the Middle East because it is a relatively small region with a limited number of countries with brand new airports – some of them recently opened and others in the process. And so we have the opportunity to implement the technology more easily.
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