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Gulf Airlines Could Slow Aggressive Growth Plans In 2012

Thursday, Jan 05, 2012

(This story was originally published Wednesday.)

-- Aircraft deliveries could be delayed

-- Worldwide air travel growth slowed in October

-- Gulf carriers seen gaining market share

By Alex Delmar-Morgan

Of ZAWYA DOW JONES

DOHA (Zawya Dow Jones)-Gulf carriers could see their aggressive growth checked this year by weaker air traffic due to the slowdown in the global economy, making route expansion more difficult and prompting some airlines to delay aircraft deliveries, analysts say.

High oil prices and conflict in the Middle East this year led to soaring fuel bills and plunging profits among Gulf airlines. Yet, despite the challenging conditions, they have continued to expand rapidly, opening up dozens of routes and lavishing billions of dollars on new aircraft to grow their already chunky fleets.

This freewheeling expansion could be thwarted by expected weakening demand for air travel in 2012 due a lackluster global economy. Analysts expect Gulf airlines to face a similar slowdown in passenger volumes but say they are better placed than older carriers in the West to weather any downturn in the industry.

"I don't think they will be able to sail completely around the storm," said Andrew Charlton, an analyst at Switzerland-based consultancy Aviation Advocacy.

"Over time, constantly expanding the amount of capacity requires constantly growing markets. That might be a challenge in 2012."

Tony Tyler, secretary general of IATA, said in November there were "good reasons to expect weakness in demand" this year in passenger volumes. IATA said year-on-year worldwide air travel growth slowed in October to 3.6%, down from 5.6% in September.

One way to absorb this falling demand is to defer aircraft deliveries, according to some experts.

"I think they've got sufficient flexibility to slow down orders so they wouldn't need to take the aircraft when they originally were going to," said Peter Morris chief economist at U.K.-based aviation consultancy Ascend. "It may well be they need to slow down their expansion to reflect market conditions," he added.

Because Gulf airlines are some of the biggest buyers of commercial jets in the world, they have the bargaining power with top two planemakers Airbus and Boeing Co. to renegotiate delivery schedules if they wish.

A spokesman for Dubai's Emirates Airline said there were "no plans to delay any aircraft deliveries". Abu Dhabi's Etihad Airways and Qatar Airways said they didn't plan to defer deliveries in 2012.

Qatar Airways has orders worth over $50 billion for more than 250 aircraft, while Emirates' order book is valued at around $84 billion.

Meanwhile, as air traffic slows, the three large Gulf carriers might struggle to open as many routes in 2012 as they have in previous years, analysts say.

Growth into Europe is going to be particularly challenging because of the region's weak economy, stiff competition and the saturated nature of the market, Aviation Advocacy's Charlton said.

"There is no point pushing growth into markets that are on their knees," he said.

Etihad launched 7 new routes in 2011 and so far hasn't announced any for 2012, a spokesman said. Qatar Airways , which currently flies to 110 destinations, aims to fly 120 routes in 2013, it said.

Still, with their modern fleet of fuel efficient aircraft and favorable geographical positioning between Europe and Asia, Gulf carriers will continue to grow at the expense of the so-called legacy carriers in Europe and the U.S, analysts say.

"At the end of 2012 their share of global air transport will be greater than it is at the start of 2012," said Charlton. Increasing frequencies on existing destinations could also drive growth, he added.

In 2011, Arab airlines are expected to grow 7% in revenues per kilometer, or RPK, the secretary general of the Arab Air Carriers Organization Abdul Wahab Teffaha told reporters in November. He said at best RPK growth in 2012 would be 12% to 13% but this could fall to below double digits if the global economy worsened.

-By Alex Delmar-Morgan, Dow Jones Newswires; +974 6659 9818; alex.delmar-morgan@dowjones.com

Copyright (c) 2012 Dow Jones & Co.

(END) Dow Jones Newswires

05-01-12 0401GMT