Arab Air Carriers Organization (AACO) secretary general Abdul Wahab Teffaha speaks to ATW Europe and Middle East correspondent Alan Dron about how airlines in the Gulf, North Africa and the Levant are managing amid the pandemic as well as the prospects for the increasing number of LCCs in the region. 

This interview is part of Air Transport Month, a detailed examination of the future of the air transport industry as we begin to climb out of the COVID-19 crisis.

 

Rush transcript:

Alan Dron:

Hello. I'm Alan Dron, Europe and Middle East Correspondent for Air Transport World. As part of our Air Transport Month special event, I'm here today with Abdul Wahab Teffaha, Secretary General of the Arab Air Carriers Organization. Mr. Teffaha, thank you for your time today. Can I start by asking you, we hear a lot about the major Gulf carriers, but how are the smaller airlines in the Gulf, North Africa, the Levant faring in the current crisis? Have their governments been able to step in with financial assistance?

Abdul Wahab Teffaha:

Not much. Let me give you a small number that would put additional financial assistance and perspective. In the US, they expected losses of the airlines, out of course coalition but the US government dedicated support through grants or loan guarantees or immediate financial bailouts in the range of almost 35% of the expected total losses. And then in Europe, it's about 30% and Asia, it's about 30% of the expected losses. And this region, it's only 10%. So the level of the losses are nowhere near the compensation or the support that the governments are providing. And we are not yet out of the tunnel.

We are still in the midst of the second wave. The hope that the world will be able to get a vaccine soon is not there. The measures that are being taken by many of the governments to impose really draconian restrictions, like quarantine and so on, are not going to help. In spite of the fact that only a 2.9% of all the infections were happening from incoming travelers, 97.1% were happening actually locally by indigenous infections, indigenous spread, and the aircraft themselves. Since the start of the pandemic only 0.000004% of the infections happened on board. So in spite of that, we see that we are really not out of the woods at all. We see that, governments are still putting in place measures that are affecting the travel industry that should not be there to say the least, and would extend the period of recovery and actually would extend the requirement for government support from them to the airlines.

Alan Dron:

Do you think that all your regions carriers will survive the pandemic or is there a possibility of some consolidation between airlines?

Abdul Wahab Teffaha:

Ownership and control rules in the Arab region are not something that would allow cross border mergers and acquisitions. If we are talking at a national level within each country, whether measures are possible, yes, but in this region you'll have basically two categories of airlines. In every country, airlines which are owned by the governments, either overwhelming majority or totally owned by governments. And you'll have in some countries airlines, which are privately owned or publicly traded. Merger between government and non-government airlines, is not something that is the norm, is not usual. So, we're talking about either merger of privately-owned airlines or merger between government on the airlines and each country. But for now, I don't think anyone is looking at this possibility, at this point in time. Simply because, the whole issue is not very clear. The whole impact of the pandemic is not clear. And the way out of it is not very clear and therefore, it will be difficult to take strategic steps towards ownership and control and unclear environment.

Alan Dron:

Okay. Looking ahead to hopefully better times, there will soon be considerable competition in Abu Dhabi between two new low-cost carriers– Wizz Air Abu Dhabi and Air Arabia Abu Dhabi. Generally, do you see low-cost carriers in the Middle East eventually taking the same percentage of the market of 40% or more, that we see in Europe?

Abdul Wahab Teffaha:

No, I don't think this is possible in the Middle East simply because of the reasons I mentioned regarding the difference and the ownership and control roads that also applies on market access and on services agreements. Europe for all intents and purposes is a single market whereby, and the 27 countries of Europe, any airline actually is a National Airline and all the 27 and therefore the operations of those airlines as again, for all intents and purposes, although from the regulatory standpoint is considered international what they operate in the countries, European union countries, but effectively they are almost quasi-domestic. So the possibility of operating where the business can be, regardless of the geographical and political boundaries of the countries concerned exists in Europe. It does not exist in the Arab world.

So although there is an act of openness and liberalization, and there are services agreements in between other countries, but still the level of flexibility that exists with the airlines and the European Union market has not yet reached the Arab world. Until such a time that there is Arab Single Aviation Market, I don't think the percentage or the ratio of the traffic that can be carried by the local airlines can reach the level that has been reached in the European Union.

Alan Dron:

Okay. The Middle East has obviously been one of the most dynamic regions for airline growth in recent years. How long do you think it will be before it returns to that level of growth after the pandemic?

Abdul Wahab Teffaha:

It depends on two factors. Number one, governments implementing measures that correspond to the level of the risk rather than implementing measures that are just excessive. The second factor is, of course, the immunization of travelers from exposure to the virus. Now, we have actually formulated two scenarios for recovery, the first one is the best case scenario, where governments after the second wave, the thinking would be, actually that type of restrictions on travel is not adding value in terms of the mitigation of the virus, but it is adding the hardship on the economy to the extent that, by the time we apply openness completely, there will be very few tourism entities that would be able to support the recovery.

So if they actually follow the international regulations or guidelines that were issued by the International Civil Aviation Organization together with the WHO, and if they follow the sensible non-draconian measures with regards to the mitigation of the virus, and as far as travel and tourism are concerned, then the recovery can be by 2024. But if they continue the current course, I don't think there would be a recovery before 2027. And that applies not only on the Arab aviation, that applies also on aviation across the board.

To add to the malaise of the industry and the Arab world, the economy is a major driver of growth. And 60% of the economy in the Arab world is dependent on oil and the oil prices are suppressed and that adds to the magnitude of the problem that we are facing. So it is in between 2024 to see the levels that we have seen in 2019, and go back to the high recovery where we have been witnessing before that, or 2027. And by then, hopefully that will be a lot, I mean, I'm not very hopeful that there will be a lot of tourism entities that will be able to accommodate the level of traffic that will be available by them. So, it's in between the best case and the worst-case scenario. I hope it's going to be the best-case scenario, 2024.

Alan Dron:

Right. Well, Abdul Wahab, informative as ever. Thank you very much, indeed. We really appreciate your time today. Thank you.

Abdul Wahab Teffaha:

My pleasure. Thank you very much, Inshallah