US3 vs ME3

The rhetoric has calmed down since the earlier days, from accusations of complicity in 9/11 to massive subsidies and the inability to compete against rich states to the US3 just requiring the US government to seek consultation with the UAE and Qatar regarding subsidies to the ME3.

The rhetoric included issues ranging from subsidies to labor unions and gay rights.
It appears that subsidies are like beauty, strictly in the eye of the beholder. While the ME3 talk about equity the US3 talk about subsidy and then Chapter 11 is thrown in the mix as an undue advantage accorded to US industry. The US3 counter and rightly so that this is the law of the land but then without it the US3 would not be with us today.

As for labor unions; the ME3 employ expatriates who sign up for a package that  pobably is superior to whatever they can get at there home countries, so why would they care about unionizing.  But then labor unions are governed by each country's law, just like Chapter 11 I guess.

Similarly, the anti gay issue has nothing to do with fair competition. The ME3 have gay people in their staff, and as long as they do not break any pertinent country laws, they remain employed. But then do the US3 want the US government to discuss labor unions and LGBT rights laws in the UAE and Qatar, of course not, then why bring it up other than to muddy the waters. After all the track record in the USA when it comes to these two issues is not the most pogrssive, with laws enacted in individual States that roll back the rights to unionize and gay rights.

The position of the US3 is opposed by almost all segments of the industry from Aircraft manufacturers', OEM's, the travel and tourist industry, airports and cities. Then why all the screaming?
The US3 are making record profits and there is very little overlap in the international routes they operate with those of the ME3. Is it an anticompetitive sentiment and a myopic view of what constitutes competition? Partly yes, look at the postion taken against Norwegian 's application to operate to the USA or the stance of Delta against the EXIM bank as an indication. The ME3 counter with; compete on  service; invest in new modern aircraft, state of the art IFE systems and customer service on board and on the ground and passngers will come back.

The issue that really scares the US3 and their EU Lgacy airlines partners is 5th freedom rights from Europe and the ensuing comptition on the North Atlantic market. FedEx and that segment of the market oppose the US3 position because they do not want any changes to these 5th freedom rigths. Emirates Airline's Milan/New York route was opposed by both the US3 and the EU Legacy airlines because it directly affects North Atlantic traffic. Tim Clark, Emirate's president intimated last week that the airline might exercise its 5th freedom rights under the bilateral if it proves profitable. He basically declared if a European city asks Emirates to operate because they feel there isn't enough capacity to the USA then subject to profitability Emirates will operate. Etihad has that option but then they do not really need the bilateral to operate on the North Atlantic, they have their own EU approved equity partners; Alitalia, airberlin to name a few.

Welcome to the global travel market.

Emirates, A Force of Stability or Disruption

Emirates, the largest international carrier and the oldest of the three Gulf Global Airlines, evokes confidence, distrust, and a sense of foreboding  with every decision it makes from buying aircraft to announcing new routes

If you are Airbus or Boeing, you value Emirates as a force of stability in aviation. Six (6) weeks after 9/11, when legacy airlines all over the world were reeling from the events of that day: grounding aircraft and laying off employees specially in the USA and Europe. Emirates, during the Dubai Airshow 2001, did the unthinkable and ordered USD 15.6 Billions worth of aircraft.

• Twenty five (25) B777s
• Twenty Two (22) A380s
• Eight (8) A340-600s
• Three (3) A330s

In Dubai Airshow 2013 Emirates did it again it helped launch the B777X with an order of one hundred and fifty (150) plus another fifty (50) options and ordered another fifty (50) A380s helping Airbus to stabilize the A380 production line for the near future.

Undoubtedly, Emirates is (was) rewarded for its good deeds with very attractive pricing, well below what the competition gets. Something that reflects favorably on its yields and financial results.

On the other hand, legacy carriers specially Delta, American, Qantas, Air Canada, Air France and Lufthansa considered Emirates (Etihad and Qatar Airways) as mere toys of oil rich desert princes and heavily subsidized government airlines. They are considered by Delta and the A4A as the most disruptive force in the industry. 

Fast forward to the present and the critics of yesterday are the partners of today

• Qantas has a great agreement with Emirates, resulting int the transfer of its Singapore hub to Dubai. The deal has been profitable for both airlines;
• Air Canada whose position on additional frequencies for Etihad and Emirates escalated into a diplomatic rift between the UAE and Canada, now has a code share with Etihad;
• Qatar Airways is a member of One World;
• American Airlines and Etihad has a code share agreement; and
• Air France KLM has signed a very deep and extensive code share agreement with Etihad.

It is understandable when EU airlines complain about the Gulf airlines, they actually compete with them; directly between their respective hubs and on connecting traffic to Europe, USA and Latin America. These new entrants have shifted the center of aviation, from Europe as a hub between the Americas and the other side of the globe, to their Gulf hubs. US airlines never really competed directly with Emirates or the other two global airlines, so the complaining and whining is somewhat surprising.

Emirates competes on service, passenger amenities and convenience. Their First and Business classes are rarely discounted and if you think their fares are low, think again, they are not. However, the service is exemplary, their seats and cabin are leading edge and ICE (their IFE system) is out of this world. Emirates knows how to fill its flights. They actually make money, not because they are subsidized but because they keep airplanes full at the right yields, and they buy their aircraft at the right time and the right price.

They also sponsor sports clubs and events, spending millions of dollars to make sure that the name of Emirates is seen by millions of people across the globe while watching soccer, tennis or Formula 1 among others. Emirates and the others invest in lounges, media promotions and sports to keep the brand global.

Emirates works hard at increasing the productivity and efficiency of its operations, but it pays attention to its expansion.

 Emirates Vision and Values clearly explains their methodology for success

A strong and stable leadership team, ambitious yet calculated decision-making and ground-breaking ideas all contribute to the creation of great companies. Of course, these have played a major part in our development, but we believe our business ethics are the foundation on which our success has been built. Caring for our employees and stakeholders, as well as the environment and the communities we serve, have played a huge part in our past and will continue to shape our future.

Saudi Arabia's Domestic Market, The Final Stretch.

When everyone almost forgot about the two operating licenses that GACA awarded to Qatar Airways and Gulf Air-Abdel Hadi Al-Qahtani and Sons Co in late 2012. 

During the Dubai 2013 Qatar Airways announced it will launch Al Maha Airways in the first half of 2014 using aircraft from Qatar Airways. However, the management of Al Maha Airways will be independent from the airline and staff will be directly hired.

Similarly, Al Qahtani Group announced the launch of Saudi Gulf Airlines based in Dammam. Gulf Air denied that it has applied for or was awarded an operating license by GACA. Gulf Air is a consultant to the new airline assisting it in obtaining GACA approvals. The airline will start operating in Winter 2014. To date Saudi Gulf Airlines have not indicated the type of equipment it will be operating.

Both airlines will start operating to major cities (Riyadh and Jeddah), second tier cities, regional and international route as they develop.

How much coordination, and there will be some, between Al Maha Airways and its owner Qatar Airways is something to look for in the near future. 

As we await developments of the new airlines; Nasair the low cost carrier has followed in the footsteps of flydubai and will introduce business class on some of its routes, primarily for religious tourism and eventually for corporate clients.

Thoughts on Emirates Response to Jetihad

This post was first published in Bangalore Aviation as a part of a guest post titled Three-way Analysis: How does Emirates respond to Jetihad? written in collaboration with Devesh Agarwal and Vinay Bhaskara of Bangalore Aviation. This blog has been enhanced with their insight of the Indian aviation industry and government dynamics.

The Indian government has the knack of making interesting decisions like encouraging Air India to dump prices to gain market share causing mayhem in the market place and increasing Air India’s losses or Allowing Air Asia to invest in Indian aviation by approving a JV with the Tata and Bhatia group, creating an LCC that will put pressure on Indigo and SpiceJet. The latest was quadrupling the number of seats between India and Abu Dhabi which will benefit mostly Jet Airways and Etihad or Jetihad. 

In a Bangalore Aviation recent blog (http://www.bangaloreaviation.com/2013/04/infographic-airline-wise-share-of.html ) on International Traffic Share in and out of India showed Jet Airways share at 16.01%, Emirates at 13.04% and Etihad at 1.95%. The India market is important to the GCC carriers it provides feed to MENA, Europe and North America, a market that is being developed by these carriers with a station starting almost every month, the latest is Qatar Airways to Philadelphia. The latest India/UAE bilateral will almost double the allocated per week seats of Jetihad over Emirates.

Dubai has unofficially asked for a doubling of the per week seat allocation but requested an increase from 54200 to 72400 seats per week. 

Emirates can opt for an FDI in one of the LCCs and collect the prize of added capacity, an unlikely option after their earlier experience with SriLankan.

One option is for Emirates to code share with one of the large domestic players like Indigo or SpiceJet in order to increase its India feed and encourage them to operate into Dubai. Emirates currently code share with Jet Airways on the Mumbai and Delhi daily flights to Dubai. Flydubai flies only to three destinations Hyderabad, Ahmedabad and Lucknow and would like to increase its India destinations (which is less than 2% of its capacity). Flydubai is capable to fly to smaller secondary airports providing feed to Emirates through the link on their respective websites.

Code sharing is a short term solution. Ultimately, the real solution has to be through the India-UAE bilateral. Emirates needs the increased capacity for itself and Flydubai. Emirates can leverage Dubai’s position as a global hub and destination for Indians. Indians are the top expatriate investors in Dubai property (9 Billion AED) and the UAE is the second trading partner of India and has billions of dollars in investments. Add to the mix, almost two (2) million NRIs living in the UAE, a good proportion affluent. Dubai can also leverage its stature in the UAE to push the boundaries of the bilateral. Jetihad has shown that Air India and indeed the airline industry interests can be put aside by the government if the stakes and overall benefits are framed correctly. 

How Emirates and by extension Flydubai and indeed Air Arabia will frame their argument remains to be seen. Regardless, with the lack of a clear India Aviation Policy, the government will react to a properly framed request.

Aviation Safety Culture

Dubai Civil Aviation Authority (DCAA) organized the Aviation Safety Culture 2013 (29-30 January 2013), an event that is designed to create a safety culture amongst the users of Dubai's Airports and to strength its position as a leading airport in terms of application of aviation safety standards.

The seminar, for want of a better word, discussed the Safety Management System (SMS) design and implementation which has been mandated by ICAO and picked up by national aviation authorities. It is not about the Policy Statement or the actual writing of the manual to satisfy regulatory requirements. It is about instilling a common safety culture. especially in multicultural work places with expatriates coming from more than 160 nations, with differing national cultures and levels of education.

An SMS manual looks at the practical side of things however, during implementation it fails to reach the grass roots, the people at the workplace. For SMS to be effective, its safety message has to be communicated to the employees that carry the organization. They are the people that need to be mentored, coached and motivated, who need to understand the safety message and how it affects them, their colleagues, the organization and their customers. They need to learn how to deal with pressures before they deal with processes and technology, it is about behavioural safety and consistent implementation. It is about an Organizational Culture that is able to override a National Culture when it comes to safety.
A good SMS  relies on people's competence and supports them in order to be able to recover from serious failures, especially those unusual and unpredictable.

A safety culture has several elements; Informed, Reporting, Just, Flexible and Learning. The toughest one is Just, the ability to balance between accountability and learning. It is the balance between the organization's need to learn from errors and the accountability of people committing them.
It is a fine line that is hard to draw, but in all cases it has to be transparent and consistent.

Of course, more aspects of Safety Management Systems were discussed. Clearly SMS is not only about a policy or a manual or processes, procedures and technology, it is about communicating the safety message to all the right people.

Airports, The New Differentiator

As competition rages between the three GCC carriers Emirates, Etihad and Qatar Airways the need for airport capacity becomes more evident. The primary requirement is not only to handle the increasing number of passengers but to provide a satisfying travel experience. As the level of on board services becomes ever so close, the differentiation shifts to the airport experience.

On January 13, The Director General of Qatar Civil Aviation Authority announced that the new Doha airport will be renamed Hamad International Airport and will start full operation in the second half of 2013. However, flights not requiring lounge access will start operating from April 1, 2013.
Qatar Airways will move in as soon as Lounges are completed.

Dubai Airports having  just started soft operation of the new Concourse A, a part of Terminal 3 complex  designed solely to handle A380 aircraft, announced yesterday, 14 January a major project to revamp Terminal 1. The project starts in Q1 2013 and is scheduled for completion at the end of 2014. The upgrade includes streamlined baggage screening, new departure check in desks, all the airport retail and food areas and the arrival halls; basically a full radical facelift. The idea is to enhance the travelling experience. The revamped terminal will be linked to Concourse D, currently under construction by an elevated train system.

Abu Dhabi Airport Company awarded the contract for the Midfield Terminal Complex in Abu Dhabi International Airport on June 2012. The complex located between the two runways will be completed by 2017. The Terminal Complex will have a passenger terminal, cargo and duty free facilities capable to handle up to forty  million passengers annually.

The importance of the airport experience is not lost in the region with airports like Dubai and Abu Dhabi already offering free wi-fi providing connectivity to passengers in addition to restaurants, food courts, lounges, a hotel and shopping experiences in their duty free areas.

2013, The Fun Begins

Barely a week into the new year and developments in the GCC and MENA have already started.

It was only yesterday 7 January 2013 that I blogged about 2013 A Game Changer , only to read today 8 January 2013 reports regarding Etihad, possibily buying an equity stake in Alitalia SpA from Air France-KLM who own 25% of the Italian carrier. Nothing unusual about that, Etihad expands through acquiring equity stakes in airlines, except for the fact that Etihad and Air France-KLM have recently signed a code share agreement. How accurate this is remains to be seen!

Similarly, competition and choice in the Saudi Arabia market is on the rise with Flydubai starting  a twice weekly service to Ha'il next February, Qatar Airways already launched yesterday a four weekly service to Gassim and finally Emirates added a third A380 service to Jeddah, for four days in January, in support of the Dubai Shopping Festival.

2013 a Game Changer

The year 2012 had many interesting events but 2013 will see the impact of actions or inactions taken in 2012.
Things to look forward to will have an impact not only regionally in MENA but globally:
1. Dubai, the fourth busiest airport in the world is destined to become the second busiest in 2013 with the
    opening of Concourse 3, the only dedicated A380 terminal in the world by early 2013 and the relocation
    of the Qantas hub from Singapore to Dubai will help achieve this target.
2. Etihad will make a decision on investment in an Indian carrier in two (2) weeks time, regardless of the
    airline, probably Jet Airways. The decision will change the dynamics in the Indian airline market and inject
    a higher degree of competitiveness.
3. The fate of Kingfisher Airlines is still hanging after failing to get its flying permits reinstated. Bankers do not
    seem to agree with the proposed funding of the operation as put forward by the airline. Until the airline
    resumes operation, and there is a great possibility that it might not, there is a void in the market that is
    going to affect fares and costs.
4. Qatar Airways joining Oneworld, Emirates code sharing with Qantas a Oneworld member, Etihad's equity
    stake in Airberlin a Oneworld member and possibly Jet Airways which might end up as a Star Alliance
    member coupled with its extensive code share agreement with Air France-KLM a Sky Team member will
    change the dynamics of the three major alliances. How, no one seems to know. And if we add a possible
    merger of American  Airlines a Oneworld member with US Airways a Star Alliance member then the
    world alliance dynamics are anybody's guess.
5. The privatization of Saudi Arabian Airlines and the award of two (2) operating licences to Qatar Airways
    and Gulf Air will certainly change things in the Saudi market, injecting a new level of competitiveness.
    How this would affect the turnaround efforts of Gulf Air remains to be seen. The airline is changing and a
    lot hinges on who the new CEO will be.
6. Kuwait Airways is on its way to privatization, Iraqi Airways is on the rise and Royal Jordanian is hoping
    for a turnaround.
7. Low cost carriers in MENA are on the rise and they are expanding their market share putting additional
    pressures on legacy airlines.

These are events that we already know about, what other surprises 2013 brings, is anybody's guess.
We live and see.

Left Out.....

The last few months and certainly weeks have seen mega activities by the Global Airlines of the Gulf.
It seems the critics and adversaries of yesterday are the partners of today. A fact all airlines should heed.

It is official and in spite of Mr. Al Baker's earlier denials, Qatar Airways is joining Oneworld. Qatar Airways is a massive addition to the Oneworld network, considering that the airline has massive aircraft orders which usually translate into additional destinations.

Etihad has just signed with Air France - KLM a code share agreement. Airberlin also signed a similar  code share arrangement. There is also discussions about joint procurement and closer cooperation. 

Etihad seems to be working equally comfortably with both Oneworld and SKYTEAM alliances.

Emirates and Qantas, a Oneworld member, signed a code share agreement that has Qantas shifting its Singapore base to Dubai and terminating a long term agreement with BA its Oneworld partner.

Currently Qatar Airways has several code share agreements with Star Alliance airlines (Lufthansa, United and ANA among others), but nothing on the scale seen above (equity stakes, alliance joining and long term agreements).

Is Star Alliance (the largest of the three in terms of member airlines) being left out by design or just a coincidence? Only time will tell...

Kingdom of Saudi Arabia, The Third Operating License

GACA, having indicated that the third AOC in the Kingdom will be offered to a foreign operator from the GCC, has short listed seven (7) out of the fourteen (14) proposals it has received earlier.

The seven finalists are:

Qatar Airways, Falcon Express Cargo Airlines, Nesma Holding Co, and the following consortia Bahrain Air - Saudia Private Aviation,  IDB - AlMasria Universal Airlines, Gulf Air - Abdel Hadi Al-Qahtani and Sons Co,, Chinese HNA Group (Hainan Airlines) - Saudi Mazaya Al Shabab Co.

It is expected that the winner of the air carrier license will be announced in September or October 2012, with a target for starting operations in the first quarter of 2013.

So far GACA is meeting its planned milestones (give or take a few months) and it will be interesting to see how this will pan out. 

Read full story here.

 

Airline E&M: Middle East Conference

UBM Aviation, Airline E&M: Middle East Conference was held at Yas Island, Abu Dhabi UAE from 14 through 16 May 2012. This year's conference is probably one of the most important because it brought together major players in the region to discuss the future of the industry in view of the ever changing threats both regionally and globally: from the ever rising price of oil, the Arab Spring and the situation in Syria, Iran and the West, Greece, Spain and the Euro Zone crisis.

This year UBM Aiation invited people from outside the industry to provide their analysis of the ever changing world scene; Richard Thompson, Editorial Director, MEED and Mr. Riad Kahwaji, CEO, INEGMA.
Mr. Thompson discussed the economic outlook and the challenges facing the region while Mr. Kahwaji discussed the security implications of regional and global threats. The final analysis was; economically optimistic about the economic environment and short term pessimism but long term optimism as far as security goes.

The conference as usual discussed the future of MROs regionally and globally and the prospects of the smaller MROs as OEMs expand into the Repair and Overhaul field (more in future blogs). It also discussed Component Support, Engine Support, Leasing and Airworthiness issues.

This year's discussions were relatively more important, not only because of the prevailing global economy but because of the introduction of new technology aircraft and their impact on costs, support and operation.

Overall, the conference was a success and the introduction of speakers who are not aviation professionals to discuss issues affecting aviation from their perspective, I think is a great idea and should be repeated at later conferences

Kudos UBM Aviation

Balance A Commodity in Short Supply

As Europe falls into a double dip recession the debate of austerity vs. growth is raging. The argument that austerity measures do not create growth and jobs is gaining credibility. The answer does not lie in uncontrolled government spending but rather in an approach of cost savings and measured spending to spur growth. 

On a micro economic level, this is similar to the approach taken by airlines globally. This tends to explain the resilience of the airlines in MENA/GCC when compared to those of Europe and North America.

With every crisis in the last two decades western airlines have cut costs and tightly controlled growth. The best example is US carriers post 9/11, that instituted deep cost cuts and throttled growth to the point it took more than a decade for the sector to recover and barely just. It took a major shake up with consolidation and bankruptcies to energize the industry.

In this region, similar things happen. Airlines start by cutting costs and canceling unprofitable routes and flights to stem losses. Productivity drives and cost cutting becomes the battle cry of the season, just as conventional wisdom dictates. But then common sense or folly prevail depending on your point view. Aircraft are not grounded in mass and orders are not canceled, maybe deferred.  

The airlines of the region continue their growth either by increased frequencies to popular and new regional destinations or by expanding into new regions such as Asia, Africa, CIS and South America, the emerging and frontier markets of the global economy. Markets that are totally ignored by Western European and North American carriers. Instead, we hear the criticism of how airlines are subsidized by their governments, as if western carriers are not protected by their respective governments.

This balanced approach to regional and global crises is what have saved the airline industry of the region, over and over. 

MENA and GCC Airlines Upbeat But...

This year's Arab Travel Market (ATM), the most prestigious regional event in travel and tourism in the MENA and GCC regions, was the most successful in many years. Attendance was 10% more than last year's. African and Asian countries attended to market their countries, even Europeans attended despite the Eurozone crisis. The mood was upbeat. Airlines in the countries of the Arab Spring showed Q1 traffic growth of around 25% higher than last year and airlines in the GCC had around a 10% growth (the difference being the lower base for each region).

Political instability is still a factor in the prosperity and financial performance of tourism and the airlines in the region, but things are stabilizing as political and hopefully economic reforms take hold.

However, oil prices are by far a larger threat, almost every airline has indicated fuel costs constituting around 40% of its total cost in spite of fuel hedging ( 25% to 30% of their annual fuel needs are hedged on average). This has prompted Qatar Airways CEO to declare that if oil prices persist or increase we are bound to see higher ticket prices. An increase that might derail a fragile recovery.

Of course, the Eurozone crisis is another problem and the recent elections in France and Greece are not very encouraging. If the economies of the Eurozone enter into a deeper recession, a further reduction in European visitors to the region will occur with negative consequences to tourism and airlines.

Airlines in the region are again discussing growth plans and expansion into new markets and destinations, exhibiting the vibrancy and resilience of the sector.

Expansion by Acquisition, A New GCC/MENA Trend

Etihad Airways just announce its acquisition of a 40% stake in Air Seychelles for US$ 20 Millions. As a result the flights to Mahe will increase from four (4) weekly to daily and several European flights out of Abu Dhabi will carry a joint flight numbers in addition to the presence of Air Seychelles in Etihad sales offices. This follows Etihad's 29.2% stake in Airberlin a month ago.

Not to be left out Qatar Airways has announced that they have selected a target airline in Europe for a major equity stake to be announced in due time. Qatar Airways already has a 35% share of Cargolux.

THY Turkish airlines is interested in LOT polish airlines.

It is worth remembering that Emirates had a 40% stake in Air Lanka for 10 years with a management contract which was terminated in 2008 and Emirates subsequently sold its shares back to the government.

2012 An Exciting Beginning

The Chinese New Year is upon us and the Year of the Dragon is supposed to be much better than last year.
Well, it looks like it maybe so. January has been an interesting month with lots of exciting news for the region.

The opening of the Saudi Domestic and International market tops the list. The Kingdom of Saudi Arabia is a large market with a population of 27 Millions and 27 domestic airports, effectively served domestically by two airlines; Saudi Arabian Airlines, the national carrier and NAS Air a low cost carrier. As early as April 2011 General Authority of Civil Aviation (GACA) has declared its intention to liberalise the market in order to better serve the consumers by allowing foreign airlines especially those from the GCC to operate domestically and internationally subject to bilaterals. This January GACA declared that by April 2012 they will issue an RFP for interested airlines wishing to participate. In the meantime airlines like Emirates and Gulf Air among others have shown interest and are in discussion with the authority.

Qatar Airways has indicated that they have identified a European take over target, but they are not saying which airline (maybe Czech Airlines). keeping in mind that the airline has acquired 35% of Cargolux last year and right after Etihad's 29.21% in AirBerlin, who by the way inaugurated their first flight into Abu Dhabi on 16 January 2012. It appears that THY Turkish Airlines maybe interested in acquiring LOT Polish Airlines.
That will make a total of five (5) airlines in Europe that have been bought (BA/BMI) or a large stake acquired in them (Qatar Airways/Cargolux and Etihad/Airberlin) or are targeted.

On a more sobering note, Gulf Air ruled out its privatisation effort for the time being due to the events in Bahrain and it will probably be looking for the Saudi market to improve its financial position. This is a reversal of the trend of privatising airlines in the region, keeping in mind that Kuwait Airways privatisation was put on hold in October 2011pending restructuring of the airline.

2012 maybe a tough a year but for sure it is going to be an interesting one.

2012 ... A Tough Year

Is 2012 going to be a repeat of 2011? The chances are yes. Not much has changed except a lot of issues of 2011 are going to be resolved one way or another. The uncertainty that prevailed in 2011 is still with us and in some cases it is getting worse.

2012 is full of geopolitical issues affecting the region
- Tunis, Egypt, Morocco and Libya will be governed by Islamists, who for decades were in the opposition.
   They will face the test of governing, the realities of the world and the well being of their people and
   economies. With the exception of Libya the other three depend heavily on tourism and the test will be the
   balancing act between beliefs and pragmatism.
- Syria remains a problem with no apparent solution in sight in the mean time casting shadows on Lebanon.
- Yemen is still the same with very little movement in spite of the accords signed in Riyadh.
- Iraq seems destined to even more political instability that may end up in its break up.
- Iran's threats to close the Straits of Hormuz could lead to a major conflict coupled with the nuclear
  capability problem with  Israel threatening to bomb Iran's nuclear installations.
- The Palestinian Israeli conflict that keeps worsening with the intransigent position of Israel relative to the
   Peace Process and Palestinian Statehood.
- The Euro zone debt crisis deepens with the downgrading of France, Austria and others including the
   European Financial Stability Facility (ESFS) leading Europe into recession and potential country defaults
   affecting tourism to the region.

On the other hand there are some good news
- Dubai and Abu Dhabi are developing into destinations of their own attracting more and more visitors.
- Saudi Arabia is embarking on an interesting experiment in airline liberalization by allowing GCC and other
   foreign airlines to operate domestic and international flights from the Kingdom.
- The airlines of the region are still expanding into new markets mainly South America, Africa and the CIS.
- Cargo operations are on the rise and with the reconstruction in Libya and hopefully Iraq will cause an
   increase in regional cargo operations.
- GCC airlines are expanding by acquisition with Etihad and Airberlin following Qatar Airways and Cargolux
   in 2011. Qatar Airways indicated that they have identified a target airline in Europe for acquisition. Who
   knows, Royal Jordanian may revive the plans of a merger with an airline a la Air France/KLM model.
- India is allowing Foreign Direct Investments (FDI) in its ailing airlines and hopefully more restructuring
   of the industry. India remains a large and expanding market that attracts not only Oneworld and Star
   Alliance but every GCC airline.

In a nutshell nothing changed from 2011.
- The capacity of the MENA/GCC airlines will increase and so would their networks through additional
  aircraft deliveries and mergers and acquisitions.
- Kuwait Airways will hopefully restructure.
- Saudi Arabia will launch its new initiative allowing regional airlines to expand within the Kingdom by
  operating domestically and internationally and allowing carriers to serve more and more destinations.
- Cargo is assuming a higher importance with airlines like Emirates, Etihad, Qatar Airways and Royal
   Jordanian.

Will the airlines of the region make profits, probably if everyone in the neighborhood behaves.
"Plus ca change, plus c'est la meme chose" (The more things change, the more they remain the same).

Wishing you all a prosperous and safe 2012.

Adieu 2011

2011 is coming to an end and it has been a rocky year regionally and globally.

Politically, The Arab Spring has resulted in regime changes and more uncertainty. Europe is in turmoil over the Euro debt and the USA goes from one funding crisis to another. Rating agencies have been downgrading major economies deepening the Euro Zone crisis. India is facing a weakening of its currency and a relative slow down in its GDP same as China.

In MENA/GCC 2011 has been an interesting and challenging year for the airlines and aviation.
Most airlines managed to expand and no aircraft orders were cancelled or deferred. Most of the MENA carriers managed to recover from the Arab Spring effects. Passenger numbers were comparable to 2010 if not better but yields suffered. Fuel amounted to 40% to 60% of the airlines cost however ticket prices remained at the same level in fear of losing passengers. Mega aircraft orders were made during the Dubai Air Show. Emirates became the largest B777 operator same as the A380. Etihad ordered additional B787s to become the largest operator. Qatar Airways will be the launch customer for the A320NEO after browbeating Airbus and ordering 50 firm and 30 options. Oman Air ordered B787s keeping Boeing happy.

The airlines of the region expanded into Africa, the CIS and South America in addition to the traditional markets in Europe, India and Saudi Arabia. Relatively new markets, in order to sustain their capacity growth in face of increasing global and regional political and economic turmoil.

There has been several major events during the year that will have an impact on 2012 and beyond:

Etihad increased its stake in Airberlin to 29% providing much needed cash to the European carrier and providing access to Etihad's network, just as Airberlin will provide Etihad with access to Germany and Europe.

The second event is the announcement by GACA of the completion of their proposals to allow foreign investment and regional carriers to operate domestic flights within Saudi Arabia and international flights from any point in the Kingdom. GACA does not know how successful this will be, but are willing to wait and see and then adjust depending on the response.

There has been other events such as the privatization of Kuwait Airways after its restructuring and the code share agreement between Royal Jordanian and Airberlin.

As 2011 passes away, I wish you all a Happy and Prosperous 2012

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

Qatar Airways and The Iran Connection

Qatar Airways is increasing its presence in Iran. The airline added 31 flights a week to its schedule, bringing it to 52 flights from 31 flights a week, a 150% increase (read the full story). It added a new destination, Isfahan with a daily flight and increased its frequencies to Tehran, Mashad and Shiraz.

What is more interesting is the news that Qatar Airways will start domestic flights within Iran by code sharing with a local carrier (read full story) to get around ownership issues.

Iran has been suffering from sanctions which prevented it from getting spares needed for western aircraft. The safety record of Iran aviation leaves a lot to be desired, 13 incidents since 2008 (view here). Interestingly more incidents on Russian built aircraft than western ones. It is welcome news to have modern well maintained aircraft flying domestic routes. That will definitely be a boost to civil aviation safety.

Qatar Airways will commercially do very well and will be able to channel passengers away from the competition to its regional and international services out of Doha. However, politically this maybe an
enterprise fraught with danger, unless of course the Americans and Europeans have tacitly given their
agreement to this venture. No speculations here, the future will tell.

Kuwait Airways .... Privatization The Way Ahead

Finally, the government of Kuwait has decided to provide the legal framework for the restructuring of Kuwait Airways as a precursor to its privatisation (read full story). The PrivComm has recommended the restructuring to the government despite the broad expressions of interest in the airline.

The recommendation does not come as a surprise, the airline has several issues ranging from chronic loss making over the last couple of decades. Staffing issues including numbers and productivity, their staff went on strike a week back for better wages. On top of that the airline is being investigated by the Government for corruption.

At last, the project is on the right track, how long the restructuring effort will take is unknown yet, but it will not be easy and probably painful.

Interesting times are ahead, as another GCC airline restructure.