Frost & Sullivan Yearly Sectoral Analysis: Commercial Aviation in the Middle East

The Middle Eastern economy has been growing at the rate of 2.0 per cent in 2009 and 3.7 per cent in
        2010. Strong oil reserves have made the Middle East the richest region in the world. This has also
        encouraged international companies to set up offices in this region. There was also large cash inflow in
        the Middle East for Infrastructure and Defence. In 2010, Saudi Arabia allocated about US $60 Billion
        towards the purchase of Defence equipment from the US; this is one of the biggest deals in Defence
        history. Emirates Airlines has ordered about 90 A380 aircrafts. Emirates is the largest customer of
        A380 for Airbus.
        MARKET OVERVIEW
        The Commercial Aviation sector in the Middle East has been witnessing rapid growth over the past
        decade. The growth in the Aviation sector is in tandem with airport development activities in the
        Middle East. Airline operators based out of the Middle East are on an aircraft procurement spree, to
        cater to the increase in passenger traffic in the region. The passenger traffic in the Middle East was
        about 183 million passengers in 2009; this is expected to increase to about 386 million passengers by
        2020. Airline operators in the Middle East are expected to induct new aircrafts in their fleet, thereby
        driving the demand for new aircrafts.
        MARKET DRIVERS
        The Middle East developing as a global business hub
        American and European companies are looking towards emerging markets to expand their
        businesses. The geographic and economic aspects of the Middle East have attracted several
        international companies to this region. The Middle East is also a preferred business hub due to the
        world-class infrastructure developed by the region’s governments. An outcome of a recent survey
        revealed that the UAE is the most preferred business hub within the region. Most of the aviation
        companies have their regional offices in the Middle East.
        Increased Tourism
        Tourism has been increasing in the Middle East, primarily driven by the Dubai Shopping Festival. This
        trend is expected to continue; and this sector is expected to be catalysed by emerging economies
        like India and China. US boomers are also expected to drive the tourism market in this region. The
        UAE has allocated about US $300 Billion towards the development of infrastructure. The UAE will
        soon inaugurate its Formula 1 Grand Prix track, which is also one of the initiatives to increase
        investments in this region.
        Attractive Real Estate Destination
        There has been an increasing demand for procurement of property in the Middle East. Key
        properties like Burj Towers, Dubai, and Palm Islands have been attracting international investors.
        This has been a key driver for the Commercial Aviation sector and this trend is expected to continue,
        taking into consideration the upcoming projects.
        Immigrants in the Middle East
        There are a large number of immigrants, from developing countries like India, who have settled
        down in the Middle East. This is due to the fact that the Middle East has a higher exchange rate than
        other developing countries. The immigrant population has been a key driver for the Commercial
        Airline Operator Sector. According to an unofficial survey, there are about 2.5 million Indians in the
        Middle East. Similarly, there are immigrants from other Asian developing countries.
        MARKET RESTRAINTS
        Rapid Growth of the Business Jets Market
        There has been rapid growth in the Business Jets Market in the Middle East. The Middle East is
        expected to procure about 450 business jets within the next 10 years. The increase in business jets is
        expected to impact premium air travelers due to the migration of passengers from premium class to
        business jets.
        Overall political tension in the region
        There are specific pockets in the Middle East, which are tense due to the current political situation.
        Iran is a good example, and with cables reliving that a few countries within the Middle East have
        been persuading United States to stop the Iranian Nuclear Program, these tensions are expected to
        increase.
        KEY CHALLENGES
        Air Space Management
        It is expected that Middle East-based airlines would procure about 400 aircrafts in the near future.
        These would lead to operational crunches at airports across the region. The key stakeholders
        involved with the Air Space Management must identify a solution to this issue.
        MIDDLE EAST COMMERCIAL AVIATION MARKET 2011-2020
        New Entrants
        The Middle East has witnessed some airline
        operator entrants in 2010. Apart from the new
        entrants, existing airline operators are also
        increasing their services in inter and intra Middle
        East routes. Route expansion plans by low-cost
        carriers are a strategy to tap destinations, which
        are being served by full-service carriers. This trend
        is expected to continue through 2020.
        Price War
        It is expected that there would be an intense price war amongst
        airline operators in this region. In 2010, RAK Airways restarted
        its full-service operations; however the airline competes with
        low-cost airlines on pricing. The urge to capture market share
        through competitive pricing would result in lowering of profit
        margins. Airline operators should be very cautious with respect
        to their optimum pricing strategies.
        Airport Development
        It is expected that there would be massive airport
        development plans across the region aimed at
        catering to the passenger traffic and also to tap the
        non-aeronautical traffic prior to the FIFA World Cup
        scheduled to be held in Qatar in 2022. These would
        also increase security spending at the airports.
        Expanding Geographic Coverage
        Airlines in the Middle East are on the verge of expanding their
        geographic coverage to Europe and Asia. The Middle East airline
        operators would not face major competition while expanding into
        major South Asian Markets like India. However, the competition
        would be fierce when entering the European market. This trend is
        expected to continue through 2020. The competition is expected to
        intensify, which would result in an increase in daily flights especially
        in 2022.
        MIDDLE EAST PASSENGER TRAFFIC FORECAST
        Air travel passengers were about 183 million in 2009. This is expected to increase to about 386
        million passengers in 2020. The compound annual growth rate is expected to be 7.8 per cent during
        the period 2010 to 2020. However, growth is expected to be higher post 2020.
        CONCLUSION
        The Middle East Commercial Aviation Market is poised for growth and would be looking at
        expanding into new destinations from an operational perspective. On one end of the spectrum, the
        air travel market is price sensitive; at the other, there is high demand for private jets. Middle East
        airlines have about 400 new aircrafts due for delivery in the next 10 years; plans for long-haul
        markets have also been strategized. There are chances that the European airlines may be beaten by
        the competition, or they may even be successful through their competitive pricing. However, it is
        very clear that the next 10 years are very crucial for European carriers trying to enter the Middle
        East, and for the Middle Eastern carriers trying to expand to Europe and the rest of the world.