DESPITE GLOBAL CHALLENGES, CONTINUED GROWTH FORESEEN

According to IATA’s2012 forecast, the Middle East will not escape the industry downgraded outlook. But it remains a region with relatively strong growth prospects of  5.7% in terms of TPK. While this is markedly down on the pace of the post-recession period, it still is well above the 2.9% industry forecasted traffic growth. ATKs in the region are forecast to increase with 5.8%, which is 2.7 points above the expected industry average capacity growth. IATA predicts Middle Eastern carriers will follow the industry’s trend of declining profitability, from a $900 million net profit in 2010, to $400 million last year and $300 million in 2012. If the eurozone crisis spirals out of control, Middle East carriers could potentially post a €400 million loss.

“We do not have a crystal ball and naturally airlines in the Middle East will record varying levels of growth in 2012, but overall I’m confident Arab air transport will post healthy growth in 2012,” Arab Air Carriers Organization (AACO) secretary General Abdul Wahab Teffaha said at the body’s annual meeting in Abu Dhabi. He cited two main reasons for his optimistic outlook:  the end of the instability in some of the Arab countries and the increasing global expansion principally by the region’s so-called Big Three carriers: Emirates (EK), Etihad Airways (EY) and Qatar Airways (QR). “They will grow exponentially in 2012 because of the value for money, the quality of service and their geographic location. These carriers benefit from the location between large aviation markets and with the help of aircraft technology, they offer the consumers the ability to travel from one point to any other point in the world with only one stop-over,” Teffaha said.

Aviation consultancy firm Seabury also believes the big three Arabian Gulf carriers are all growing in 2012, however with the downturn in Europe everybody is predicting it will be particularly difficult for them to maintain the relative unit revenue levels that have been seen in 2011, said Seabury executive director EMEA Jonathan Sullivan. EK, EY and QR are all planning to bring important additional capacity in the market and “a lot of [capacity] growth typically foretells significant challenges on the revenue front to maintain RASK,” Sullivan told ATW,adding that he expects this scenario coupled with a shrinking economy will result in a RASK decline in 2012 over 2011 at the Middle East big three.

In addition, Sullivan expects the Gulf carriers will be subject to considerable “pressure” by the European governments this year. “I expect they’ll do things the Gulf carriers won’t like, e.g., they won’t open up markets, in response to calls from their national airlines to resist the big three’s continued expansion in Europe and divert traffic from European hubs over their respective hubs in the Middle East.”

EY CEO James Hogan, however, is bullish in his outlook for 2012, concerns about the global economy notwithstanding. “As financial strategies put in place as long ago as 2006 mature, we expect to deliver sustainable profitability,” he said, confirming that the Abu Dhabi national carrier will continue to develop its network, build its brand and increase the number of codeshare partners it has beyond the current 34 (See Interview, p. 50). 

Oman Air (WY) is not taking part in the region’s capacity hike with no new aircraft coming in this year and is focusing its efforts on improving its schedule, fine tuning slots and connectivity, and increasing its sales initiatives so “that all routes that we launched start making a profit,” Peter Hill said at the AACO AGM in November. Hill, who retired as CEO of the Sultanate of Oman’s flag carrier at year-end, said he “hopes” WY to grow passenger numbers this year with about 0.5 million to 4 million although, he warned, “we do expect that the crisis in Europe will affect our traffic. And, there is lots of uncertainty in the Middle East.”

The Arab spring deprived Royal Jordanian (RJ) from a lot of traffic in 2011, president and CEO Hussein Dabbas concedes. “Hopefully the political and social unrest in the region will settle and 2012 will be a better year for us,” he said, adding that the main sticking point last year still was Syria, which is an important market for the Amman-based airline.

Also Seabury’s Sullivan expects the non-Gulf based Middle Eastern carriers to have a better 2012 than they had in 2011 because of stability returning to the region.  “2011 has been a particularly tough year for them. I’m still not sure if it would be a profitable year for them but I would expect it to be better than it was in 2011,” he said.