OVERVIEW Flying Carpets Runaway Demand Airline Growth Airport Expansion Outsourcing and BOTs Reform Low-Cost Carriers Fuel Prices Quality of Service  KEY PLAYERS COMPARISON Top 20 Airlines Top Airports  AVIATION DATA Major Airport Projects Boeing vs. Airbus Orders A380 Worldwide Orders

To cope with such encouraging figures, airlines and airports throughout the entire MENA region are revamping their fleet and infrastructure by purchasing large quantities of modern planes and by erecting a dozen new international terminals and airports.

In 2004, the Top 20 MENA airlines transported over 76 million passengers on 616 planes - representing a mere 80% of American Airlines' total traffic of 91.6 million, or 3% of world air traffic. Total fleet size (owned and leased) for MENA is equally shared by Airbus and Boeing alike, however the amount of orders directly passed by regional airlines since 1980 is skewed in favor of Airbus by over 40%, with 439 planes for Airbus and 247 planes for Boeing.

Available Seat km (ASK) - Number of seats an airline provides multiplied by the number of kilometers they are flown.
Revenue Passenger km (RPK) - Number of passengers multiplied by the number of kilometers they fly.

The Top 5 airlines in the region in terms of traffic - comprised of Saudi Arabian Airlines, Emirates Airline, Gulf Air, Iran Air and EgyptAir - alone accounted for over 63% of total traffic for regional airlines with 48.1 million passengers transported.

Out of the total passengers transported by Arab airlines, over 75% flew to international destination - a 30% increase compared to 2003. Additionally, the regional average passenger load factor stood at 66.5% - with Emirates Airline recording the highest seat occupancy at 74.6%. Airlines' revenues varied from $4.7 billion for Emirates Airline to $23 million for Tunisia's Nouvelair - compared to American Airlines' $18 billion. Emirates Airline also raked in the highest profits in the region - at $637 million - while Kuwait Airways Corporation recorded the highest publicly disclosed loss - at $99 million. The MENA airline sector generated some $16.5 billion in revenues in 2004, representing approximately 2% of the region's total GDP.

The Top 26 MENA airports hosted a total of 133.6 million passengers and recorded a total of 1.36 million plane movements - equal to 3.5% of global airport traffic, or the combined traffic for Chicago O'Hare International Airport and London's Heathrow International Airport. The Top 5 airports in the region in terms of traffic - comprised of Dubai International Airport, King Abdulaziz International Airport (Jeddah), Mehrabad International Airport (Tehran), King Khaled International Airport (Riyadh) and Cairo International Airport - alone accounted for 47.6% of total traffic for MENA airports with 63.6 million passengers.

It is important to note that traffic, excluding the Top 5 airports, increased by 23.3% in 2004 compared to 2003, while total traffic for the Top 5 airports increased by a slower rate of 11.8% over the same time period. In 2004, Doha International Airport, the region's sixth largest airport, posted a hefty 71% increase in passenger traffic compared to 2003 - by far the largest traffic growth. This is mainly due to the Qatari government's $15 billion initiative to expand the country's tourism infrastructure and the international sporting events that have taken place during 2004 - such as the International Open tennis tournament, Qatar Masters golf tournament and Qatar MotoGP, to name a few. These events have allowed Qatari authorities not only to increase Doha International Airport's traffic by a substantial figure, but also spread out the traffic evenly throughout the year – thus averting from injecting a seasonality effect.

Airports and airlines are highly significant centers of employment generation within the region, with over 22,800 people employed directly by airport authorities and over 125,500 by airlines. However, when the total number of employees working on airport sites is taken into consideration, the number of airport employees dramatically increases by some 5 folds. BACK TO TOP

Runaway Demand

The main drivers behind the aviation sector's development are explained by the high rate of economic growth in the MENA region and Asian Pacific region (mainly China and India). Additionally, impressive increases in tourism arrivals throughout the entire MENA has dramatically contributed in increasing aviation traffic.

With business hubs blooming in the Gulf and Asian and Indian economies rapidly growing, Middle Eastern airports have become an important stop-over for businessmen and transit passengers wishing to cover the European-Asian route. According to figures from Airbus, the Middle East will record the world's largest traffic growth between 2004-2013 with a 10.7% annual average increase and the second largest 20-year growth after China with a 7.1% annual average increase.

However, one of the main catalysts behind the Middle East's traffic growth is caused by restrictive bilateral agreements between Asian nations and the European continent. India's restrictive bilateral agreement, as an example, has kept capacity between India and Europe at low levels, thus forcing passengers to connect via the Gulf countries. After India's cabinet approved to liberalize its routes with the United States in April 2005, the possibility of a similar agreement emerging with Europe seems to be a breath away. If this materializes, and long-haul direct flights between Europe and Asia increase, transit traffic could be adversely affected, as well as regional airlines' most profitable routes. As an example, with 11 different destinations, the Far East represents a large 18% of Qatar Airway's current global network. Nevertheless, IATA still predicts that the European and Middle Eastern route will continue to increase with an annual average growth rate of 7.7% till 2008 – the second highest figure in the world after intra-Asian Pacific routes.

And according to the World Tourism Organization (WTO), tourism arrivals in 2004 grew by 20% in the Middle East and 17% in North Africa, representing the second and third highest rates in the world after Asia's 29%. The recent important tourism growths have brought the region's share of the world tourism market up from 2.5% in 1995 to 4.6% in 2004, and analysts expect that figure to double within 15 years. Broken down country-by-country, tourists arrivals to Lebanon increased by 30% last year, while the same figure increased by 9% in Dubai, 19% in Bahrain, 18% in Jordan, 19% in Tunisia, 17% in Morocco and 25% in Egypt. Economic and WTO forecasts expect the business and tourism growths to easily persist during the next 10 years, thus forcing airlines and airports to undergo many significant expansions. BACK TO TOP

Airline Growth

The Top 20 airlines have a combined fleet of 616 planes, with Saudi Arabian Airlines and Emirates Airline's fleets representing 27% of the total. Emirates Airline and Qatar Airways are by far the two players in the region with a clear vision of extending their network to cover the four corners of the globe, however Gulf Air and newcomer Etihad Airways are also setting similar strategies.

Historically - from 1980 till 2005 - airlines have directly ordered (figure doesn't include leased planes) a total of 91 Airbus A330s representing 13% of the total - making the A330 the region's most popular plane. This is closely followed by Boeing's 737 with 78 planes (11.3%) and Airbus's A320 and Boeing's 777 with 70 planes each (10.2%).

Currently, MENA airlines have pending orders for a total (including leased planes) of 198 Airbus planes and 76 Boeing planes - representing over 40% of total current regional fleet size. For both airplane manufacturers, Emirates Airline is the single largest customer in the region with some 65 planes on order from Airbus and 30 planes from Boeing. Emirates Airline is also considered Airbus's single largest A380 super-jumbo customer, having ordered 30% of the world's current order for such planes (passenger version). However, Qatar Airways announced in June 2005 that it will order “up to” 60 Airbus A350s and 20 Boeing B777s, both with a price tag of some $10.6 billion and $4.6 billion respectively. If the order becomes reality, then Qatar Airways will turn out to be Airbus' prime regional “new orders” customer. Qatar Airways, an airline which is recognized as one of the fastest growing carriers in the world with expansion averaging 40% year-on-year, would have also purchased its first planes from Boeing. Such large purchases go in line with Qatar Airways’ drive to expand its fleet to 120 aircraft by 2015.

Airplane purchases are also emerging from the more traditional airlines such as EgyptAir which ordered up to 12 Boeing 737s (firm order is for six airplanes with purchase option for an additional six) for a price tag of $850 million.

Additionally, two new airlines recently began operating out of the UAE - Abu Dhabi based Etihad Airways and Sharjah based Air Arabia – one airline out of Lebanon - MenaJet and another airline out of Saudi Arabia - Al Khayala. However, MenaJet - which was bred to become a low-cost carrier - has still not acquired the necessary license from Lebanese authorities to operate as a scheduled airline and is currently forced to fly out of Beirut as a charter airline. In any case, between the three new airlines, some 40 planes are currently being utilized (80% by Etihad Airlines alone) with many more future orders expected to be placed. Etihad Airlines, for example, has already 26 planes on order (14 A330-200s; 4 A340-500s, 4 A340-600s, 4 A380-800s) and the airline forecasts that it will carry about eight million passengers on 70 to 80 planes within five years.

Recently, Iran had also announced that Iranian aviation companies – which include three major players (Iran Air, Iran Aseman Airlines, Mahan Air) and several smaller ones – would need to order 138 modern planes by the end of 2010 to meet growing demand and to phase out older planes. However, under the US sanctions, the Iranian government cannot purchase airplanes in which at least 15% of components are made in the United States, thus forcing the Civil Aviation Organization of the Islamic republic of Iran to focus on purchasing planes from Europe or Russia.

Similarly, demand for jets is also coming from subsidiaries of major airlines such as Air Cairo - majority owned by EgyptAir - which is finalizing a deal to purchase six Airbus A318s and Atlas Blue - wholly owned by Royal Air Maroc - which is looking into expanding its stable of six Boeing 737s. It is important to note that some demand is also originating from companies which specialize in leasing planes such as Aviation Lease & Finance Company (Alafco) which recently signed a $1.9 billion contract with Airbus for the purchase of 12 A350s with an option for a further six.

The fleet expansion figures might look impressive at first, but when scrutinized, figures illustrate that the majority of new fleet orders are originating from the Gulf region - a rate which stands at over 90%. Similarly, all of the large orders have been placed by government subsidized airlines.

Nevertheless, according to Boeing and Airbus, the fleet purchases are set to continue during the next 20 years. Boeing predicts that the Middle East will receive a total of 726 airplanes up to 2023 for a price tag of $97 billion, while Airbus predicts the same figure to stand at 695 (MENA deliveries stand at 1,016 planes valued at $124 billion). In both cases, the total deliveries account for a minute 4% of world deliveries - showcasing that a few airlines within the region will receive most of the planes ordered by the region. The region's largest fleet request will be for twin-aisles planes, representing some 50% of total regional orders. Additional plane manufacturers, such as Brazilian jet manufacturer Embrear, expects the Middle East and Africa region to order some 177 jets between the 2005-2024 period. Embrear jets have the special characteristics of being smaller in size - with seat capacities ranging between 30 to 120 seats - thus serving the needs of low-cost carriers and intra-regional carriers. The latest order for Embrear jets in the region came from Saudi Arabian Airlines, which in April 2005 purchased 15 new Embrear 170 for a total value of around $400 million at list price.

Even though these orders represent a fraction of world deliveries, they have raised the eyebrows of many around the globe because the build up of new capacity is not fully based on underlying demand. This results in low fares and forces governments to continue on subsidizing operations because fares are often below actual cost. As an example, Qatar Airways - a heavily subsidized airline that has not yet broken-even - has a current fleet of 40 and is expecting to order a maximum of 105 planes within the next 10 years - a huge fleet for a country equipped with one international airport serving a population of some 640,000. However, this expansion follows a goal set by Qatar Airways to transport some 15 million passengers by 2015. BACK TO TOP

Airport Expansions

Airports constitute necessary infrastructure for a wider economic role known as catalytic impact, arising from the effect that air service accessibility can have on the region served by the airport. The catalytic effect of an airport operated primarily through enhancing business efficiency and productivity by providing easy access to suppliers and customers particularly over medium to long distances.

But with traffic in the Top 26 MENA airports representing nearly 80% of total available capacity, airport authorities are facing a difficult challenge to meet the ever growing increase in passenger numbers. The situation in the Top 5 airports is even worse, with traffic representing 93.5% of current available capacity, and is short of being horrid in Egypt where traffic has far exceeded capacity in three of its five most important airports (namely the ones of Sharm El Sheikh, Hurghada and Luxor (Luxor has just been upgraded)). And the need to add further airport capacity is pressing as studies suggest that failure to do so could reduce GDP at a national or regional level by 2.5 to 3% annually.

Surprisingly, airport authorities in the region have taken action before the capacity shortage worsens and out of the Top 26 airports, 17 are currently expanding by either adding new terminals or by building new airports to replace the older ones (find out more). Similarly, two completely new airports are currently being built (one in Enfidha in Tunisia and the other in Jebel Ali in the UAE) while another has recently been completed (Imam Khomeini International Airport in Tehran).

In total, nearly $30 billion will be invested in airport infrastructure alone over the next 15 years, with 65% of total investments - or $19 billion - being concentrated in the UAE alone. Such an important expansion in the UAE is understandable when studies suggest that passenger traffic is set to grow from the 29 million registered in 2004 to the forecasted 78 million by 2010.

When fully completed, all airport expansions and construction of new airports will add an extra capacity for 366 million passengers - an impressive 180% boost to the region's total capacity. And out of the total capacity to be added, some 50% will be injected by 2010. Jebel Ali International Airport, the UAE’s seventh airport which is set to become the region's largest with a planned capacity to handle 120 million passengers will alone represent over 26% of the entire new capacity to be added.

All this capacity build up has been a major magnet for airport suppliers around the world. As an example, ThyssenKrupp's elevator division had won the biggest ever order in the history of the sector when it signed a $150 million contract last year with Dubai International Airport to supply 368 elevators, 162 escalators, 128 moving walks and 123 passenger boarding bridges. BACK TO TOP

Outsourcing and BOTs

With passenger arrivals increasing rapidly, airport authorities have just started to realize that to cope with demand the private sector has to be allowed to play a certain role - whether be it by increasing efficiency at an airport via a management contract or by building new airports via build-operate-transfer contracts.

As an example, Aeroport de Paris (ADP) - the French giant recognized for its excellence in managing and building airports throughout the world - has recently signed a 6 year management contract with Egyptian Airports Company to supervise the five international airports located in Sharm El Sheikh, Hurghada, Luxor, Aswan, and Abu Simbel. The contract will focus on ameliorating the quality of service, develop non-aeronautical revenues and optimize security procedures. Also in Egypt, Frankfurt Airport Services (Fraport) - the company that manages Frankfurt International Airport – will manage the country's busiest airport, the Cairo International Airport. Both management firms will take a percentage of each airport’s revenues after achieving a certain minimum target.

Similarly, ADP's management arm also signed a 2-year technical assistance contract with Algeria's Etablissement de Gestion de Services Aeroportuaires d'Alger (EGSA) and a 1-year technical assistance contract with UAE's Ras al Khaimah International Airport. Both contracts were designed to train staff and develop the airports. EGSA also signed a ground handling (load control, passenger services, catering services, ramp services) and cargo services (cargo handling, mail handling, warehousing) contract with Swissport - the ground-handling and cargo services arm of the Swiss group - effective by the end of 2005.

On another note, the Marsa Alam International Airport in Egypt which opened in late 2001 is the Middle East's first privately run aviation facility - opened by Kuwait's Kharafi Group and managed by ADP. The airport has opened a new opportunity to the private sector in the region, one which is already spreading since the Tunisian airport authority, Office de l'Aviation Civile des Aeroports (OACA), is looking into the possibility of issuing a BOT contract for its future addition, the Enfidha International Airport.

Additionally, ADP also penetrated the region's aviation market through its airport design arm, ADPi. The French company designed prestigious passenger terminal projects such as Dubai International Airport's Terminal 3, Algeria's Houari Boumedienne International Airport terminal extension, Casablanca's Mohammed V International Airport terminal extension, the New Doha International Airport, Abu Dhabi International Airport's Terminal 2 and Beirut International Airport. ADPi also undertook the studies for the master plans of Jebel Ali International Airport, Cairo International Airport, Enfidha International Airport and the Imam Khomeini International Airport, making it one of the biggest players in the MENA airport sector. BACK TO TOP

Reform

One of the main trends that has settled within the industry is the necessary reforms needed to start competing with global players. Such reforms are taking place either by adopting an open-skies policy, by joining forces with other regional airlines, or by initiating a privatization process.

Few countries in the MENA region have adopted an open-skies policy in order to allow state-held carriers to prosper without having to compete on their own home-turf. However, positive experiences with the policy in regional airports have helped ease the minds of the skeptic, especially in countries such as Egypt and Algeria which are currently working towards opening their skies. In Lebanon, as an example, Beirut International Airport adopted an open-skies policy in 2001 and has since not only seen its airport traffic increase by 37%, but also its national carrier, Middle East Airlines, has recorded profits during the last three years.

But the anticipated transformation might originate from outside the region as pressure from European authorities is rapidly increasing due to their carriers discontent with Middle Eastern airlines' funding, financing and business practices. Even Emirates Airline, a carrier which doesn’t shy away from saying it operates as a commercial entity, is coming under heavy fire by European carriers and is even being challenged by Air France to allow close inspection of its book to prove it receives no subsidies from the government of Dubai. As compensation to non-commercial business practices by airlines in the Gulf, European airlines are lobbying to be offered more flights into the region and are asking for governments to implement open-skies policies.

Another new trend is Arab airlines sudden interest in consolidating forces - a school of thought which is gaining rapid ground in the Arab world to allow commercial airlines to stand a better chance against the non-commercial state-funded carriers and well developed foreign carriers. And this school of thought is currently establishing the first pan-Arab alliance - comprised of Egypt Air, Gulf Air, Middle East Airlines, Oman Air, Royal Jordanian and Saudi Arabian Airlines - to provide benefits that carriers could not achieve individually. The alliance, to be called Arabesk, will not only be the first airline alliance that coordinates the schedules of six close competitors, but will also allow the carriers to reduce duplication of capacity, link networks and destinations, generate market demand through improved customer connectivity and maximize capacity through route sharing and rationalization. In short, this means that the concerned airlines - which will have a combined network of over 5,000 departures each week - will simply increase efficiency through cooperation.

However, even though Arab carriers are joining forces and airports will increasingly open their skies, the king of all reforms - privatization - is still not a priority for airline authorities. The government of Lebanon, which had begun in 2002 to whisper the possibility of privatizing Middle East Airlines, has since shelved away the process till the airline becomes a viable operation - something it has now achieved. Similarly, the Kuwaiti government's plan to transform the money-draining Kuwait Airways Corporation into a public shareholding company - seen as a first step to privatize the airline - was refused by the country's National Assembly in June 2005. The draft bill was expedited straight back to the Financial and Economic Affairs Committee due to ambiguities in the proposal. Nevertheless, with more and more airlines recording profits - such as 2004 new arrivals EgyptAir, Tunisair, Oman Air, and Gulf Air - the possibility of a privatization is just around the corner as talks of more and more IPOs are emerging. As an example, Gulf Air had recently disclosed that a financial group is undertaking the studies to privatize the carrier – a move that was expected to take place as soon as the airline becomes profitable.

Similarly, successful airline restructuring plans - such as the ones for Royal Air Maroc or Air Algerie - have also whispered the possibility of privatizing national carriers.

Most importantly though, restructuring through privatization of non-core entities has started to take place - a process which brings full privatization of airlines at closer reach. As an example, in May 2005, the director general of Saudi Arabian Airlines, Khalid Bin Bakr, revealed that the management of the airline is working to prepare five important sectors for privatization - namely catering, cargo, ground handling services and maintenance, management of resources and the Prince Sultan Academy for Aviation Sciences. Another example is EgyptAir's interest in privatizing 40% of its catering unit either to Compass Group, Gate Gourmet International AG or Alpha Airports Group. If these take place, then airlines within the region would have followed the lead of Royal Jordanian, which after privatizing several of its non-core entities, is now putting the Royal Jordanian Airlines Training and Simulation Division up for sale.

In any case, there is a clear and evident change in policy within the Arab world’s aviation sector. One example of this can be witnessed in Saudi Arabia, where authorities are quickly moving away from a protectionist policy for the national carrier to a more liberalized one with several private airlines. Authorities there have now accepted the concept that an airline sector, not governed by a sole government airline, would be a major catalyst for creating jobs and spurring investment – figures which are estimated at 5,000 jobs and nearly $1 billion respectively. BACK TO TOP

Low-Cost Carriers

Probably the most notable trend in the region is the mushrooming of low-cost carriers (LCCs). No-frills airlines - their second acronym - have revolutionized the economics of the aviation industry in the last three decades with Southwest in the USA, then Ryanair and easyJet, among others, in Europe. The basics of the low-cost model are familiar by now: ruthless cost reduction at every opportunity, a single fleet type, high seat density, high fleet utilization rates, quick turnarounds, no connectivity, no interlining, direct sales through the internet or call-centers, and the use of simple, efficient airports. This recipe has proven to be successful as seven of the eight most profitable airlines in the world last year were low-cost (Emirates Airline was the only exception).

The first no-frills airline in the region, Air Arabia, made its inaugural flight in October 2003 and has since surprised many. Not only did the airline break-even within a year of operation, but it has also transported over 540,000 passengers on 5 Airbus A320s - a figure which the company expects to increase by an impressive 80% in 2005.

But the real impact of Air Arabia is much larger than the eye can first see. The success of the airline has accredited that budget airlines can operate in a region where the skies have so far been controlled by state-run national carriers - and still grab a significant market share. This has sent major shock waves within the industry, and especially within traditional airlines which rely heavily on profitable regional routes to rake in money, indefinitely changing the way MENA airlines function.

With more and more budget airlines appearing - such as Lebanon's Menajet, Morocco's Atlas Blue and the soon to come Al Jazeera Airways of Kuwait - the future of the region’s aviation industry is bright. Low-cost carriers have a proven track record in the United States and Europe for significantly increasing traffic in airports while attracting a market that traditional airlines cannot attain. But similarly the emergence of these budget airlines are set to transform the manner national carriers function by forcing them to focus their efforts on the long-haul segment of the market - a means of travel that they can still easily dominate. Additionally, LCCs are breeding a complete new vision of the MENA aviation industry with new business plans and ideas. Al Jazeera Airways - set to be the region's first privately owned, no-frills commercial airline - will offer passengers the capability to travel on Airbus A320s equipped with leather seats after purchasing competitively priced tickets via Short Message Service (SMS). BACK TO TOP

Fuel prices

Burgeoning fuel prices have had a major impact on the global airline industry since it heavily depends on the energy to operate. And even within the oil-rich region, Arab airlines had to bare an extra $600 million on fuel costs in 2004 alone, far exceeding the set fuel budgets. However, even with the extra cost, the financial performance of airlines throughout the region coped well with the price increases mainly due to traffic increase and fuel surcharges.

The airline sensitivity to any price surge depends on the revenue loss from lower demand, the ability to impose a fuel surcharge on tickets, the importance of fuel costs relative to other costs, the fuel hedging in place and the fuel efficiency of the fleet. And according to estimates by Airbus, at $1.20 per gallon of jet fuel, a $6 short-haul and $19 long-haul per flight surcharge is enough to cover the fuel price increase from the 85 cents per gallon of 2003. Nevertheless, the average cost per gallon increased by 32% for Arab airlines and reached $1.34, up from $1.01 in 2003 and $0.87 in 2002. This fuel price hikes has added, as an example, a hefty $9 million to Middle East Airline's costs, $80 million to Gulf Air's and some $270 million to Emirates Airline's. Such a trend easily continued within 2005 forcing airlines to significantly increase their fuel surcharges - a figure which for Emirates Airline hovers between $68 and $100 depending on the destination. BACK TO TOP

Quality of Service

In terms of quality of service, the MENA region's aviation sector as an average scores poorly, except for a few exceptions for airlines and airports in the Gulf. According to Skytrax, a London-based airline and airport passenger research firm, only Qatar Airways has a 5-star ranking, along with other international airlines such as Singapore Airlines and Cathay Pacific Airways. The 5-star ranking means that the airline is offering an excellent premium product and service. Emirates, Gulf Air and Saudi Arabian Airlines received a 4-star ranking, while Middle East Airlines, Oman Air, Tunisair, Egyptair, Air Algerie, Royal Air Maroc, to name a few, all got a 3-star ranking. MENA airlines who received a 2-star ranking include Iran Air, Sudan Airways, Syrianair and Yemenia.

On the other hand, in the World Airline Awards 2005 - also organized by Skytrax - Emirates received the award as the third best airline in the world, after Cathay Pacific and Qantas Airways. By region, Emirates was ranked number one in the Middle East, followed by Qatar Airways and Gulf Air. Gulf Air received the best first and business class on board catering, and Emirates received the best in-flight entertainment with its ICE system.

For airports, Dubai International Airport - "used by most passengers as a connection point rather than as an end destination" - was ranked as the 6th best airport in the world, preceded by Kansai, Munich, Seoul, Singapore and Hong Kong international airports. By region, Dubai was ranked number one in the Middle East, followed by Tel Aviv Ben Gurion Airport and Beirut International Airport. Dubai International Airport also received the best Duty Free Shopping award.

In another survey, Institute of Transport Management awarded Sharjah International Airport the Best Global Airport 2005 award mainly due to the introduction of the first and extremely successful low-cost airline in the MENA region. BACK TO TOP