Monday, June 27, 2011

MENA Airlines the Elusive Recovery

 As we approach the end of Q2 2011, airline recovery in MENA is as elusive as ever. The Arab Spring has not subsided and with no end in view; Libya, Syria and Yemen are still in turmoil with causalities recorded daily. Other countries still face peaceful protests on daily basis. Oil prices are still hovering around a $100 a barrel with no clear direction threatening to derail the global recovery coupled with a Euro zone debt crisis.

MENA airlines continued with business as usual, well almost business as usual. No new aircraft deliveries were postponed by most airlines, showing their belief that this is a short term issue and their confidence in the medium and long term positive outlook of the future. The airlines did what they did best, expand with most of the carriers in the region increasing capacity to destinations in response to seasonal (summer) demand or rising traffic and operating to new destinations.

However, all these events are taking their toll on the airlines. The UAE seems to be the least affected with the traffic increasing around 8% in Dubai and 14% in Abu Dhabi while QAIA saw a 2.8% increase in Q1.
It appears that the Global airlines (EK, EY and QR) are faring better than most. Most airlines reduced prices and introduced promotions to keep their revenues up which has caused tremendous pressure on yields. Fuel surcharges have been introduced to compensate for the high fuel prices.

Air Arabia postponed its plans for Air Arabia Jordan for the time being and several airlines reduced or combined flights to reduce the number of empty sectors.

How long would this last no one knows. For sure, a reduction of oil prices is desirable and will help reduce losses and improve margins, even a stable oil price is better than nothing (it allows for planning).

As long as violence is the response to the reform movement in some countries, the region's economies
will be adversely affected. Regimes should deal with their people in a civilized manner and respond to their aspirations. Once peaceful protest becomes the norm and reforms materialize, only then things will get better.

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