Doing Business in the Middle East:
Aviation in the Middle East
Probably the most important flights many of us book on an annual basis are for the family vacation. Immediately after choosing the destination, we try to source the most comfortable, affordable flight with the easiest/fastest route. As far as family vacations go, it is quality, timeliness, price and safety history of the airline company that count when choosing. Once decided, the actual performance of the airline can either add to the overall enjoyment of the vacation experience … or turn it into the proverbial «holiday from hell», especially if the flight is delayed or cancelled.
Something we rarely give any thought to is the airline itself and how it operates as a corporate business with staff and airplanes based across the globe. How does the industry work? How do they turn a profit?
A recent announcement by Royal Jordanian airlines that that they are suspending operations to Alexandria (Egypt), Colombo (Sri Lanka) and Milan (Italy) caused consternation and raised a few eyebrows within the industry. Following a re-assessment of the company’s route network, evaluating the economics associated with each destination, Royal Jordanian declared that after considering each routes feasibility, operating expenses and market share, they made a decision to cancel certain routes. Royal Jordanian, whose net operating income fell by 50% (down from JD 79.2 million to JD 38.1 million), also saw a drop in passengers by 70%.
More bad news followed when British low-cost carrier, Easy Jet, cancelled its London to Amman Queen Alia route after only three years of operation. Several reasons were given, including weak demand for the route and the failure to obtain a tailored fee structure from the airport to suit the needs of a low-cost carrier operating with slim profit margins. It is indisputable that the generally weak economic situation – and more drastically, the Syrian crisis – seems to have spread its wings over this crucial industry, which employs hundreds of thousands of people across the region.
Aviation in the region
TechNavio recently conducted a report forecasting the future of Middle East aviation from 2012-2016. It is expected that global air traffic will be on the rise and the fact that Middle East airports have been increasing operational costs tends to support this possibility. The question is whether or not all of this spending will stunt market growth.
The report, entitled ‘Aviation Market in the Middle East 2012-2016’, was created by numerous industry experts focusing on the Middle East and its expanding market. According to the report some of the key players making waves in the market included Emirates Group, Saudi Arabian Airlines, Doha International Airport, and Dubai International Airport. Others mentioned included Abu Dhabi International Airport, Qatar Airways, King Khalid International Airport, Qatar Airways, Fly Dubai, Etihad Airways, and King Abdul Aziz International Airport.
The first Middle Eastern airlines were launched in 1932, now known as Egypt Air. Today Middle East aviation is thriving with many airlines regularly updating their fleets with new and better aircraft.
Most people travel for business or leisure. Airlines in the Middle East look to the vacation season for increased passenger loads and increased revenues. The summer months are typically the best for airline revenues.
There are many Middle East aviation companies operating today, including:
Egypt Air – Founded in 1932, this airline was the first in the Middle East. Today the airline has a fleet of 80 aircraft serving 81 destinations throughout Europe, Asia, Africa and the Americas. The Egyptian Revolution that crippled the country in 2011 has taken its toll on revenues for Egypt Air. It is estimated that the airline has suffered nearly a loss of nearly US$1 billion over the past three years. Flights are out of Cairo International Airport.
Saudi Arabian Airlines – Founded in 1945, Saudi Arabian Airlines is one of the 3rd oldest Middle East aviation companies. Part of the Sky Team Alliance, this airline has a fleet of 152 aircraft with 19 on order and serves 118 destinations. This airline is the fourth largest in the Middle East behind Turkish Airlines, Emirates and Qatar Airways. Flights are out of the Jeddah-King Abdulaziz International Airport. They added Toronto (Canada) as a destination in 2013 and Los Angeles (US) is new for 2014.
Turkish Airlines – Turkish Airlines is the second oldest in the Middle East and was founded in 1933. This is the largest airline in the Middle East with 240 aircraft in their fleet serving 244 destinations. The airline had revenues of US$18.8 billion in 2013, with operating income of nearly US$1.5 billion. Turkish Airlines is the fourth largest airline in the world.
Fly Dubai – This is a low-cost airline in the UAE. They have 35 aircraft in the fleet serving 68 destinations in Asia, Europe and Africa.
NASAIR – This airline is based in Asmara, Eritrea. This small airline has 6 aircraft serving 11 destinations. It was founded in 2006 and serves destinations in the Middle East and Africa. The airline is just now beginning to show some profits.
Emirates – Emirates is the second largest airline in the Middle East. This Dubai-based airline has 217 aircraft in its fleet serving 133 destinations in 74 countries. The airline was founded in 1985 and offers international flights to Los Angeles, San Francisco, Dallas, Houston, Seattle, and Washington with non-stop flights. Aviation history was made when Emirates ordered 150 Boeing 777X and 50 Airbus A380 aircrafts in 2013. The cost of the venture is reported to be US$166 billion. The first of these aircraft is scheduled to enter service in 2020. Emirates claims to offer the lowest emissions which is better for the environment. The airline had US$62 billion in revenue in 2012 and US$ 42.3 billion halfway through 2013.
Middle East Airlines – Middle East Airlines (MEA) was founded in 1945 making it one of the third oldest airlines in the Middle East. This airline is based in Beirut, Lebanon. They have 17 aircraft in their fleet with 10 on order for 2017. They serve destinations in Asia, Africa, Europe, and the Middle East.
Air Arabia – Air Arabia was founded in 2003. It is a low-cost airline based in Sharjah. Flights are out of Sharjah International Airport, UAE. The airline boasts 35 aircraft with 9 on order and serves 89 destinations in Europe, North Africa, Central Asia and sub-continental India.
Jazeera Airlines – Jazeera Airlines was founded in 2005. The airline is based in Kuwait and flights are out of the Kuwait International Airport. Jazeera made KWD 30.8 million in revenue for the first half of 2013. It is the second national airline in Kuwait and serves 15 Middle East destinations. They have an 8 aircraft in their fleet with two more on order.
Qatar Airways – Founded in 1993, Qatar Airways is the third largest airline in the Middle East. This airline is a member of the One World alliance. Flights are out of Doha, Qatar. The airline has a fleet of 152 aircraft that serve 135 destinations in all 6 continents. In 2013, Qatar Airways introduced a mobile app designed to make it more convenient for potential customers to connect with their airline.
Etihad Airways – Etihad Airways is located in the UAE and was founded in 2003. 1000 Flights leave Abu Dhabi every week. This is the second largest UAE carrier. The airline had 10.3 million passengers in 2012, which was up 23% over 2011. Revenue was estimated at US$6.1 billion in 2012. There are 92 aircraft in the fleet serving 96 destinations. In 2013, Etihad bought 33.3% of the Swiss based Darwin Airlines. Etihad has earned 30 aviation awards over the last decade including many for the best first class service in the world from the World Travel Association.
Royal Jordanian Airlines – RJA was formed in 1963. The airlines are based in Amman, Jordan and flights arrive and depart from Queen Alia International Airport. Royal Jordanian has 33 aircraft and they fly to 61 destinations. In July 2014, their first Boeing 787 Dreamliner, which seats 267 passengers, will become part of the fleet. Royal Jordanian did cut flights to three destinations recently, but the new Boeing 787 will open up many new destination possibilities.
Royal Jordanian reduced operating costs in 2012 from US$728.6 million to US$722.8 million. Gross profit for the same
time period was US$79.2 million, which was up from US$7.4 million in 2011. This was an incredible 926% increase. However, gross profit dropped from US$79.2 million in 2012 to US$38.1 million in 2013, with rising fuel prices and political unrest in the region were blamed.
Gulf Air – Founded in 1950, Gulf Air is one of the oldest airlines in the Middle East. Located in Muharraq, Bahrain, Gulf Air has 26 aircraft in their fleet that serve 41 destinations in the Middle East, Europe, Asia, and Africa.
Oman Air – Oman Air was founded in 1981 with their hub in Seeb, Muscat. They boast 30 aircraft and serve 42 destinations. In 2011, they won the Gold Award for the best airliner of the year. They are looking to expand their fleet by 50 aircraft by 2017.
The Middle East aviation business is attempting to flourish, but rising fuel prices, a weak economy, and political unrest in Syria and Egypt has hindered progress to a certain extent. Out of all the airlines mentioned in this article, only four have a 7-star rating for excellence. They are Turkish Airlines, Royal Jordanian Airlines, Emirates, and Etihad.
It is estimated that 400 million passengers will use a Middle Eastern carrier by the year 2020. Each airline is trying to come up with something better than the next. All airlines in the Middle East are working painstakingly to ensure safer flights with increased comfort. The advent of new technologies will ultimately make it feasible to do so.
Countries all over the Middle East are pumping billions of dollars into airport infrastructure to meet the pending needs of future travellers. The International Air Transport Association (IATA) has stated that the Middle East is an ongoing aviation success story. They believe
the Middle East will ultimately enjoy the strongest international passenger increase in the near future.
By 2015, Dubai is projected to become the number one international airport in the world, replacing London’s Heathrow Airport. With the emergence of the new super jumbos, Boeings 787 Dreamliner and Airbus A380, the future is definitely looking brighter.