The Middle East’s major carriers will face the same difficult operating conditions this year as they did in 2019, according to IATA’s director general.
“We expect the same slowdown in growth that we faced in 2019,” Alexandre de Juniac said at a roundtable event for journalists at IATA’s annual media event in Geneva in December 2019. “The main carriers in the region will not have the same growth rate and profitability and are facing a difficult situation due to political reasons in the region.”
Middle Eastern airlines are expected to see a collective loss of around $1 billion this year—an improvement on 2019’s $1.5 billion in losses.
Diplomatic standoff
In addition to the escalating tensions between the Gulf nations and Iran, IATA could detect no sign of reconciliation between Saudi Arabia, Bahrain, Egypt and the UAE on the one hand and Qatar on the other. The four nations have been at loggerheads with Doha over the latter’s political stance since June 2017 and flights between the two sides have been at a standstill.
The biggest loser has been Qatar Airways, as the closure of airspace around Qatar has meant its aircraft must take longer flight paths, pushing up costs. This has not stopped the carrier from pressing ahead with—indeed, accelerating—the expansion of its route map, supported by the Qatari government.
However, the ban on flights has also affected the airlines of the other four nations. Egypt, for example, has many thousands of expats working in the Gulf and its national carrier has felt the loss of its Doha traffic keenly.
“It was a golden route for us but, at the end of the day, we just have to deal with it,” EgyptAir Holding Co. chairman and CEO at the time, Safwat Musallam, lamented.
The continuing blockade has led to the four nations prohibiting their citizens from traveling to Qatar. Other nationalities that need to move between the opposing countries in the dispute have had to travel via Kuwait or Oman, which have remained neutral in the diplomatic spat.
Elsewhere in the region there are problems in several countries. Air services in strife-torn countries such as Yemen and Libya are limited and sporadic. Iraq is tense, as shown by the recent decision by multiple airlines to temporarily halt flights to Baghdad and, although the Syrian conflict is calming down, problems remain on its northern border with Turkey.
Smaller carriers
Smaller national carriers in the region are still in the game, although with varying results. Royal Jordanian, for example, continues to turn in a gritty performance, producing small but respectable profits despite competition from both the major Gulf carriers and LCCs. Bahrain’s Gulf Air is in the midst of a major refleeting; its last Airbus A330-200 left the fleet in late January, with all long-haul flights now being handled by Boeing 787-9s, and the current short- and medium-haul fleet of A320 and A321s being rolled over in favor of neo replacements. No profit or loss figures for the state-owned carrier have been available for several years.
Oman Air, meanwhile, continues its expansion in the face of dwindling financial support from the Omani government and fierce competition. The airline announced it was instituting a “transformation plan” in September 2019 involving fleet harmonization, organizational restructuring and increased digital transformation, but has declined to provide any details.
Despite these problems, IATA said in December that analyses from think tanks specializing in the region indicated that while geopolitical tensions would remain, they would not worsen.
Since then, of course, the US has killed Iranian Revolutionary Guard Corps Quds Force commander Gen. Qassem Soleimani but, after initial retaliatory missile strikes by Iran, the two sides seem keen not to exacerbate the situation.
Apart from the geopolitical issues, one of the region’s major problems remains air traffic congestion, a situation that de Juniac said had worsened as a result of the Qatari dispute.
There are two solutions, he said: investment in new air traffic management equipment and greater cooperation between states—but the chances of tensions easing are negligible, he acknowledged.
The “ME3”—Emirates Airline, Etihad Airways and Qatar Airways—are likely to be joined by other major contenders, de Juniac said. He mentioned only Turkish Airlines by name, but the clear implication was that fast-expanding Saudia would shortly be a force to be reckoned with.
Saudi Arabia’s recent decision to open the country to international tourism—television advertisements for the country’s attractions are already appearing in Europe—will spur further growth, not only for the national flag carrier but for other Saudi airlines. The country is developing several purpose-built resorts—and airports to serve them—in the northwest of the country on the Red Sea coast.
The ME3 have faced difficult times in recent years. Etihad has racked up huge losses and is in the middle of a major restructuring, with profits not expected to reappear until 2023. Qatar Airways has also dipped into the red through the effects of the diplomatic dispute and even Emirates’ profits were sharply down last year. Etihad and Emirates are also rethinking the shape of their fleets. Etihad has slimmed its orderbook, while Emirates’ decision to cut its order for Airbus A380s will mean operating larger numbers of smaller aircraft in the future.
New models
After a lengthy period of extremely rapid growth, the ME3 are starting to exhibit more “classical” patterns of airline behavior, de Juniac said, with constant reshuffling of fleets to take account of a maturing market.
He expects to see their “superconnector” model of operations continue. There were two new models that could affect this: ultra-long-haul direct flights such as Qantas’ planned Project Sunrise service between Sydney and London; and low-cost, long-haul operations.
Ultra-long-haul flights of anything up to 20 hours will not be easy to operate, he said. Their effect on the superconnectors’ hubs remains to be seen. On low-cost, long-haul: “My personal viewpoint is that I’ve always been a bit skeptical. One of the key reasons for the success of short-haul and medium-haul low-cost services is the hours of operation for aircraft.”
Legacy carriers previously operated their aircraft for seven to eight hours a day, while LCCs increased that to 11 to 13 hours.
“For long-haul, however, the legacy carriers are using their aircraft to their maximum capacity, usually 14 to 15 hours a day, and you can’t really go above that when you take maintenance and turnround into account,” de Juniac said.
There are also hidden costs in long-haul operations, such as hotel accommodation for crews, he said.
The real change in attitude required of Middle Eastern carriers seeking to improve their financial positions, de Juniac said, is to be cautious in deploying capacity after 20 years of rapid expansion.
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