Tuesday, November 29, 2011

2011 A Challenging Year - Revisited

2011 A Challenging Year was written in May 2011and discussed the various challenges facing the airlines in MENA and GCC and of course globally.
Four (4) challenges were listed at the time
1. The natural disasters in Japan and the ensuing damage and problems;
2. The deepening Euro zone financial woes;
3. The political upheavals in MENA and GCC; and
4. The increase of fuel prices.

As we approach the end of 2011 three (3) out of the four (4) are very real. The world have moved beyond the  natural disasters in Japan and a couple of ash clouds in the southern hemisphere.

Political and financial upheavals are still with us and will probably spill over in 2012 and the price of oil, although relatively stable at this time, is still unpredictable. Most airlines in the region including those in the India has performed well. 

People still travelled and the airlines compensated by operating to new destinations;

- Air Arabia and Flydubai looked towards the CIS and specially the Ukraine among other destinations
- Several airlines started operations to new destinations in Saudi Arabia.
- Gulf Air started flying to Copenhagen, Nairobi, Milan and Geneva with Rome, Entebbe and Juba to follow
  and embarked on a marketing campaign "From the Heart" in an attempt to woo back passengers.
- Royal Jordanian is eyeing Africa with a plan to operate to Lagos, Accra, Nairobi and Addis Ababa in the
  near future in addition to several other destinations.
- Etihad is looking to start flights to Maldives, Seychelles, Chengdu, Dusseldorf, Shanghai and Nairobi.
- Emirates is looking at Dallas and Seattle, Lusaka, Harare, Dublin, Baghdad, St. Petersburg, Rio de Jainero
  and Buenos Aires
- Qatar Airways is starting flights to Entebbe, Tiblisi and Baku in addition to increased frequencies.

All airlines have posted increases in passengers carried and in revenues coupled with a reduction in yield, including the embattled airlines in India like Jet Airways and Kingfisher.

The effects of the Arab Spring, with the exception of Syria, are subsiding in most countries and economic activities are improving or are expected to improve. The deepening Euro Zone debt crisis is taking the world on a roller coaster ride, but eventually a plan will be devised and the world will limp towards recovery.

The kicker here is the price of oil, airlines have reported increases in their fuel bill for 2011 ranging from 40% to 80%. The airlines are reluctant to increase ticket prices; on the contrary they are discounting to stimulate traffic. With Europe facing financial problems, Europeans may be less inclined to travel especially if fares increase. On the other hand, the airlines need to offset the rising fuel costs, the traditional fuel surcharge may not be the best means, fares have to eventually reflect the true cost of travel and the realities of the market.

Airlines are between a rock and a hard place, they cannot raise fares to offset oil prices for fear of losing traffic.

This will probably be the biggest challenge of 2012

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