Cairo – Decypha: As an ambitious sector globally recognized, the airline industries is deemed a major asset to a country’s GDP. The global airline industry is expected to yield a net profit of $29.8 billion in 2017 according to a report by the International Air Transport Association (IATA). Despite the high yields expected from the global airline market, the Middle East airline industry have witnessed low average yields and costs according to IATA, mentioning the industry’s strength is driven by capacity expansion which grew 12.2% in 2016.
Region’s Market Performance
Another report by IATA predicted that post-tax profits should grow to $1.6 billion and achieving a profit of $7.83 per passenger and a net margin of 2.5% in 2016. The report further added that achieved revenue is 2.5% in the Middle East.
Although expectations for the region were keenly confirmed, The Middle East carriers generated a net profit of $0.3 billion and an average profit per passenger of $ 1.56, according to Gulf News. Despite the low yields achieved in 2016, IATA forecasted a capacity growth of 10.1% this year and a growth demand of 9%.
Jonathan Root Vice President of ratings agency Moody’s expect the Middle East to lead among all regions in regards to Revenue Passenger Kilometer (RPK) growth of 9% despite its cause to declines of 1.8 % in growth rates.
Challenges & Opportunities
The decline in growth and profits are mainly caused by the effect of decreased oil prices, according to Forbes, GDP growth in the GCC countries is expected to remain low with an average of 1.6% in 2017-2018; however each country will vary in performance where Qatar is expected to achieve a growth of 3.3% and Saudi Arabia is to achieve 0.7%.
The aviation industry is not pulled back only due to decreased economic activity but also due to fears over terrorism that decreased connecting traffic between the regions of Europe and Asia and onto the gulf countries. Despite the recent ban lift on electronics, the ban on carry-on electronic items on flights to U.S from 10 airports to the region, was another challenge that used to decrease demand for eight consecutive years according to IATA. The move to remove laptop ban has been implemented last week by UAE-owned airlines Etihad and Emirates.
The governments increase to taxes and charges remained an obstacle decreasing chances of profitability; however despite the challenges several opportunities continued to originate in the market including a rising capacity that will resonate in 2017, adding 10% of capacity and seats to the current airplanes unlike Asia for example which will expand to only 7.5% and more lower percentages in U.S and Europe. The capacity growth is expected to stir competition among GCC airlines.
Qatar
Beginning its operations starting in 1994, Qatar Airways is considered the top best airlines in the Middle East by the World Airline Awards in 2017. Reasons behind Qatar’s success remain numerous; it was recognized as the world’s top 10 airports. The ‘Best Cabin Crew’ award and ‘Best Business Class’ were among the many prestigious awards Qatar has won, according to a press release by Qatar Airways. As part of its success story, the company uses its latest automated tracking technology to tackle the increasing demand for high quality and time-critical of flight services.
Qatar Airways, world leading hub, has added 13 new destinations in 2016 to reach a global network of over than 150 worldwide destinations. Qatari-based Hamad International Airport was recognized as the world’s top 10 airports in 2016 as it is known for recreating traveler experience for business and leisure. Qatar Airways was the first in the world to pass the IATA’s Operational Safety Audit which is meant to rationalize several security and safety procedures in aircraft engineering, maintenance, operational security, cabin operations, and management systems.
UAE
The second best airline in the Middle East is UAE’s Etihad that has recently won the “Best First Class in the World’ Awardin the Skytrax World Airline Awards. The company also won best first class Onboard Catering and Best First Class Airline Seat according to Arabian Business. The aviation sector contributes AED 61.3 billion which is 6.2% to the country’s GDP, according to a statement by government. Recognized for the innovative and cutting edge developments, UAE carriers have also managed to maintain a safety record, fleet, network expansion, and code sharing with other airlines. Eithad aims to expand its international partnerships by entering into code-share agreements and purchasing shares in airlines with several countries including Germany and Australia.
One of the main markets for Etihad Airways is the United States as 203,515 passengers flew to U.S between January and April in 2016; however the passenger traffic growth on the Middle East to North America market slowed down in 2017 where revenue passenger kilometers decreased by 1.2% last April but the route to and from Europe continued to witness an increased trend through 2017, according to Khaleej Times.
Despite UAE’s airline companies’ successful outputs, Abu-Dhabi based Etihad has been recently releasing staff and Dubai-based Emirates Airline has been witnessing major fall in profits as it has recorded AED 786 million worth of profit for the six months to September 2016 which is lower than the record anticipated during the same period last year where revenues also declined to $ 11.4 billion compared to previous $11.5 billion according to Forbes. The UAE’s prestigious airlines’ weak performances, makes Qatar Airways non-stop service a winning airline including its long-range Boeing 777-200 LR that has made aviation history as it covered 14,542 kilometers within 17 hours, stated Brookfield Aviation International.
Saudi Arabia
Taking third place in the list of the best airlines in the Middle East, the Saudi Arabian Airlines contributes SAR 30.2 billion which is 1.8% annually to Saudi GDP. Comprising of 27 airports, the country has witnessed approximately 45 million passengers have travelled from and t Saudi Arabia, 81,800 international flights depart Saudi Arabia annually, and international passengers pay SAR 97.4 billion as inclusive tax while Saudi Arabian passengers pay around SAR 48.7 billion, according to a statement by IATA.
Space-based ADS-B Global Air Traffic Surveillance firm Aireon has signed a memorandum of understanding with Saudi Air Navigation Services (SANS) where SANS will manage one of the largest airspaces in the middle east and develop another layer of surveillance through operations for space-based automatic dependent surveillance-broadcast (ADS-B) as an additional layer of surveillance. SANS is responsible for the air navigation services in Saudi Arabia and is known for modernizing concepts in the airspace spectrum, according to Aviation Today.
Oman
Oman Air comes in fifth place on the list of Best Airlines in the Middle East is currently reshuffling its focus on-board services and developments that will be a sole priority for the company in 2017. The company has increased its contribution to the country’s GDP by 6% to reach OMR 415 million in 2016 according to a press release by Oman Air and is expected to grow to OMR 900 million in 2017. Generating more demand for the company and expanding its network are the only assets to contribute to the economy.
The company has won World’s Leading Airline- Economy Class at the World Travel Awards in 2016 and Foreign Airline of the Year by Sector to the Middle East in the annual KLIA Awards in 2006, recognized as the best in Malaysian aviation industry.
Despite of challenges and fall of revenues in some GCC airlines, the Middle East is set to be the fastest growing region in the aviation market in 2017 with promising opportunities to expand, according to forecasts issued by ratings agency Moody’s. It is expected that the industry will yield growth in regards to capacity and Revenue Passenger Kilometers (RPK), as Forbes explained.
By Fatma Khaled
