KUWAIT/DUBAI (Reuters) – The global airline industry may be crumbling, but the Gulf Arab region is launching new airlines and ordering new aircraft.
A small group of Gulf carriers, focusing on regional rather than global routes, are betting that growth in the energy exporting region will allow them to thrive amidst the global financial crisis.
“We will be focusing on what you call a four-hour radius,” said Ghaith al-Ghaith, chief executive of Fly Dubai, which launches next year, told the Reuters Middle East Investment Summit being held this week in Kuwait and Dubai.
“We know that there is lots of business in this area and we know that with the plans that Dubai and the UAE has to develop infrastructure here, there are opportunities.”
Economic growth driven by government spending of oil revenues, trips home by a large expatriate work force, and the lack of alternative travel routes between the desert countries will drive growth in the region, said Marwan Boodai, chief executive of Kuwait-based Jazeera Airways.
“We can’t say we are totally immune but as for the business model of Jazeera, we are more focused on the Middle East point-to-point,” he said. “That is where we want to be in the future and the impact for us will be less.”
Industry trade group The International Air Transport Association (IATA) said in October only a handful of Arab carriers would be profitable this year and traffic growth would drop sharply from 18.1 percent last year.
PENT UP DEMAND
Worldwide carriers in the Gulf, such as Dubai-based Emirates EMAIR.UL or Abu Dhabi’s Etihad, may be more prone to the slowing economies in Europe or Asia.
But carriers like Jazeera or Fly Dubai will still benefit from local growth and liberalization of aviation in the region, although gradual, that allows new entrants to compete.
“There’s definitely a pent-up demand in this part of the world, not on all of the routes and we haven’t really seen the light as far as open skies is concerned,” Ghaith said. “We believe the tide is changing and there will be more openings as far as the air politics is concerned.”
The region’s budget airlines are also moving beyond the Gulf Arab oil producing nations. This week Sharjah-based Air Arabia AIR.DU, the region’s largest low cost airline, said it would begin operations from Morocco early next year, enabling it to serve the European market.
“Aviation is a sector we invested in,” said Tom Speechley, executive director at private equity firm Abraaj Capital, which holds a stake in Air Arabia. “In this part of the world (aviation) remains stronger than anywhere else in world.”
Wealthy travellers in the region will drive a large part of the local demand, said George Cooper, chief executive of Kuwait National Airways, which will launch in January under the brand name Wataniya.
Its planes will have luxury leather seats and a seat density that is among the lowest globally for commercial airlines, he said.
“Kuwait to some extent is an island from the global crisis,” Cooper told the summit. “GDP per head here is colossal. There is enough demand and enough flow of money that revenue will be there for us.”
The gross domestic product per capita in Kuwait, the world’s seventh-largest oil exporter, was about $33,000 in 2007, the country’s largest bank said this year.
In addition the region’s new carriers will be able to benefit from industry woes elsewhere.
Wataniya, which is starting with leased aircraft, has seen prices drop sharply since the crisis.
“The whole supply side of the industry has really freed up and we’ve been able to make some good deals,” he said. “There is no shortage of pilots either because airlines are cutting back.”