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Wednesday, September 1, 2010

Middle East airlines lead global recovery

Carriers based in the region are adding more capacity than any other region, reports IATA

DUBAI: Airlines based in the Middle East increased capacity by 13 percent in the first six months of this year according to a new report by the International Air Transport Association (IATA). North American airlines, by comparison, increased capacity by just 1 percent. Carriers managed to increase demand by 19 percent over the same time period, as apposed to 8 percent in North America, the report continued.

While some speculate this expansion can be explained by the fact that some Middle Eastern airlines are government owned, analysts disagree.

“It’s a myth,” said Oussama Salah, an aviation expert based in Abu Dhabi in the United Arab Emirates, when questioned on this notion.

“If you look at the last months, almost every operator has added new services as opposed to North America that is keeping a tight (lid) on capacity because they are concerned over the margin,” Salah said.

The dream scenario for any airline is to have all flights full all the time, but when a carrier adds new routes that require new investments, there is an initial time period when the route may not be operational under full capacity. This results in a loss of revenue and smaller profit margins.

“Royal Jordanian just added Madinah and Khartoum. Gulf Air just added Iran and Etihad Airlines added two or three destinations,” Salah explained.

“They need the capacity; however, they are not going to do it just because they feel like. Some have access to money but not all,” he said. “There is a market and there is a demand.”

Philip Butterworth-Hayes, CEO of PMi Media and a long time aviation industry analyst, says the expansion of Middle East based airlines is not happening through the targeting of common European destinations.

“They (the Middle East carriers) have been able to expand because they have been very innovative and very clever in targeting secondary hubs instead of taking on the European legacy carriers at airports like Heathrow (London), Amsterdam, Paris or Frankfurt,” Butterworth-Hayes told The Media Line.

“Instead they have focused on developing good services at Manchester or Munich where the legacy carriers have not consolidated their positions,” he said.

“It’s true that they have been funded (by government) but what we have seen is they are profitable,” he explained, adding, “Every single major European legacy airline has at some time been supported by their government.”

One of the most well known names amongst Middle East airlines is Emirates Airlines, which was established by the government of Dubai in 1985 as part of efforts to diversify the small Emirates’ economy by attracting tourists and businesses to the region.

The government of Abu Dhabi followed suit in 2003, establishing Etihad with a royal decree and $136 million in start-up capital.

Qatar Airways, in its current form, was established in 1997 and marked the start of a growth period for other Gulf based airlines. The carrier’s home hub, Doha International Airport, is located just outside the capital. In contrast to Emirates Airlines and Etihad Airways, which are fully government owned, Qatar Airways is partially owned by private investors.

The success of Gulf-based legacy airlines was evident when the British market research firm Skytrax announced the world’s top 10 airlines in 2010 based on passenger reviews. Qatar Airways made number three, followed by Etihad Airways from Abu Dhabi (UAE) at number six, and Emirates Airlines from neighboring Dubai at number eight.

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