Middle East takes centre stage
The Middle East has become the world’s fastest-growing aviation market and – although it looks set to be overtaken in growth by China – it will remain a key focus for aircraft manufacturers, writes Ian Goold.
Airbus and Boeing account for a combined 90 percent of the Middle East market for current and ordered airliners and look set to continue their dominance, according to analysts at the Centre for Asia Pacific Aviation (CAPA).
“Carriers have not shown interest in the Bombardier CSeries, or the new narrowbody aircraft from emerging manufacturers: the C919 from [China's] COMAC, [or Russia's] MS-21 from Irkut or Sukhoi Superjet,” CAPA says.
Bombardier aspires to change that situation, promoting its new CSeries jetliner through a new Middle East and Africa commercial-aircraft regional sales and marketing office in Dubai. Its efforts may soon bear fruit, if a widely expected booking does finally come from Qatar Airways.
The Canadian manufacturer is pursuing a share, however small, of a market that is making itself – both geographically and metaphorically – the centre of the air transport world. Dubai-based Emirates Airline points out that the Galapagos Islands in the southern Pacific Ocean are the only destination beyond non-stop reach of one of its long-range Boeing 777s.
Commercial-aircraft manufacturers agree. “A look at the [Middle East's] location illustrates a special and unique position, lying between three major continents having the highest share of world’s population,” says the September 2011 Airbus global market forecast (GMF). “High air-traffic growth has created the need for greater expansion to meet the regional goal of becoming the world’s Number 1 global aviation hub.”
Aviation is at the heart of the region’s plan for future economic growth. This has been characterised by huge infrastructure investments and airport expansion, Airbus says. For example, Dubai is to spend US$7.8 billion on airport and airspace expansion, boosting local capacity (available seat-kilometres/miles) by 50 percent to reach 90 million passengers per year by 2018.
It is hardly a secret that, a decade ago, the Middle East share of world air traffic was much smaller, with the region's airlines flying mostly in local markets. Today, such operators have become global players and the region is the fastest-growing in the world, says Brazilian regional-jet manufacturer Embraer.
“Air transport demand has increased an average of 14 percent annually over the past ten years,” Embraer says. But this expansion is not forecast to continue: "Over the next 20 years, China will be the fastest-growing market, with an average annual RPK [revenue passenger-kilometre] rate of 7.5 percent, followed by Latin America with 7.2 percent, the Middle East with 6.9 percent, and Asia-Pacific with 6.1 percent."
Factors identified by Airbus as contributing to domestic and intra-regional Middle East economic-development trends include labour mobility among Arab countries, population age and tourism. “One of the main purposes of travel in the [region] is to visit family-members abroad. Intra-regional migration and labour mobility have a long tradition and history in the Middle Eastern,” the manufacturer says.
Remittance flows, for instance, represent the largest source of foreign exchange for several countries, such as Jordan, Lebanon, and Syria. According to the Arab Labour Organisation, the labour market in Gulf Co-operation Council countries has an average of 66 percent of foreign workers (92 percent in the UAE, 76 percent in Bahrain, 51 percent in Saudi Arabia, 74 percent in Oman, 62 percent in Qatar and 82 percent in Kuwait).
Since 2000, airline capacity to, from and within the Middle East has grown an impressive 175 percent, according to Airbus. While this appears to compare poorly with capacity to and from China, which has grown almost seven-fold, the European manufacturer says it is often forgotten that traffic within the region has grown 150 percent over the same period.
Boeing confirms the local trends taking place: “While air-transport markets in the rest of the world shrank during the global economic downturn of 2009, international air travel continued to grow for Middle East carriers.” The US manufacturer says that this demonstrates the region's prominence in global air travel.
“International traffic continued to grow during 2010, rising 17.8 percent for Middle Eastern carriers – far exceeding the world average of 8.2 percent growth,” Boeing says.
According to Embraer, strong interest in business and tourism, together with a sizeable expatriate workforce, has promoted the development of intra-regional markets in the Middle East.
“In 2005, some 230 intra-regional non-stop city pairs were served primarily by high-capacity narrowbody and widebody aircraft,” the company says. “As regulatory restrictions ease in the Middle East, airlines with smaller-capacity aircraft will be well positioned to launch new non-stops in mid-density markets and building network connections from hub airports.”
Embraer adds that although the current intra-regional network is more developed than it was five years ago, there remains room for improvement in 55 percent of the markets. “More than 70 city pairs do not have any non-stop air service, and another 140 are served with less than one flight per day.”
Looking outside the region, Airbus says that international travel will be a key driver of traffic trends in the coming 20 years. The intercontinental route network will grow rapidly as new origin-and-destination combinations are introduced and operations expand, with Middle East international traffic forecast to grow by 6.4 percent per year during 2011-30.
Traffic between Latin America and the Middle East is forecast to increase by an impressive 19.4 percent over the next ten years. New routes linking the UAE and Qatar to Brazil were opened during 2008 and 2010, respectively. Accordingly, Airbus predicts requirements for more long- and medium-range capacity, resulting in the Middle East fleet of passenger aircraft with more than 100 seats more than doubling by 2030.
“From 1999 to 2008, passengers in Dubai and Abu Dhabi have increased by more than 300 percent,” Airbus says. “Both cities offer transiting visitors high-quality hotels, museums, resorts, and other attractions.”
The manufacturer suggests that such developments provide local tourism and relaxation opportunities for travellers in transit between connecting flights. “Dubai has developed a special identity as a financial and luxury-tourism centre globally. Abu Dhabi has developed a plan to create a knowledge-based economy,” the manufacturer says.
Boeing points out that the so-called ‘Gulf Three’ airlines – Emirates, Qatar Airways, and Abu Dhabi's Etihad Airways – use market strategies based on sixth-freedom rights that permit operators in one country to carry passengers or cargo between second and third states via a scheduled stop in their home country. “Sixth-freedom privileges have enabled [them] to take advantage of their central location to expand their share of traffic between Europe and Asia,” Boeing says.
Thus, a very large air-travel market does not rely on originating traffic in home countries that have relatively small populations. Together, the region’s ‘big three’ carriers have more than 500 aircraft on order, of which more than 80 percent are widebodies, with deliveries stretching all the way out to 2022.
Embraer attributes high traffic growth in the Middle East – 18 percent last year – to “the emergence of global hubs with high-frequency flights that connect long-haul east-west passengers”. The Brazilian company expects positive annual growth of 6.9 percent for the next 20 years as carriers in the regional add a large number of high-capacity aircraft.
Boeing says travel demand in the region is being stimulated by new and emerging low-cost carriers (LCCs) that are aiming at the young local population and the large migrant workforce. “Flying short- and medium-haul routes within the region and to Africa, India, and Eastern Europe, the LCCs supply only 4 percent of the region's capacity, yet they account for more than one-third of [its] backlog of single-aisle airplanes.” The US manufacturer says that the Middle East accounts for 22 percent of the global large-airliner market, in addition to its substantial backlog of such aircraft.
Embraer says that in 2010 some 835 aircraft were engaged in scheduled services in the Middle East. The average age of the 810 jets and 25 turboprops, which together account for 4.4 percent of the global airline fleet, was nine years, while the region's order backlog of 730 aircraft comprised 725 jets and five turboprops.
It says the profile of the Middle East commercial-aircraft fleet is dominated by 300 single-aisle narrowbody aircraft and 405 twin-aisle wide-body jets, respectively representing 36 percent and 49 percent of the fleet.
Embraer predicts that, by 2030, the region's fleet will number some 2,175 aircraft, which by then will constitute 5.9 percent of the global fleet total (see table). Embraer forecasts 20-year requirements for 310 new aircraft: 65 percent for growth and 35 percent as replacements.
Boeing foresees demand for some 2,520 commercial aircraft from Middle Eastern carriers in the next 20 years to take the fleet to about 2,710, while Airbus predicts a need for 1,921 machines offering 100 or more seats, almost trebling the regional fleet's size to 2,260 units. Boeing expects two orders in three to be driven by capacity expansion, rather than replacement.
“As the order books of airlines in the Middle East continue to swell, it seems that even the most ambitious of forecasts for the region are insufficient,” concludes CAPA. “With almost 1,000 aircraft already on the order books [from] Middle East carriers, more orders are certain to come as smaller carriers and LCCs sort out their fleet plans over the next few years.”