The collapse in yields to the Indian subcontinent and the Philippines has pushed carriers in the Middle East into a fares pact aimed at stemming the decline.
Gulf Air, Emirates and Kuwait Airways agreed at a meeting in Kuwait in June to raise market fares on sectors to India and the Philippines by 25 per cent for a trial period from 16 July. The airlines say overcapacity has caused yields to fall by 40 per cent over the last two years.
Abdulrahman Al-Busaidy, Gulf Air's new vice-president strategy and corporate affairs, denies the airlines are seeking to create a cartel. 'This is a collective effort to correct the market conditions,' he says. 'This is the only way it's going to work - to do it individually will not.'
Driven by strong business demand, the Indian subcontinent accounts for 50 per cent of the airlines' total traffic from the Gulf and between 60 and 80 per cent of net earnings. Al-Busaidy says the intention is to restore recent yield erosion. 'We'll start with a 25 per cent rise, see how that works, and then gradually build it up'.
The airlines are looking to extend the fare increase, first to other points in the Indian subcontinent and then to other Asia-Pacific destinations. 'The three airlines have to lead this programme in all markets by holding up their fares and encourage the other main operators to join in at a local level,' says Shoaib Khoory, senior general manager for the Middle East and the CIS at Emirates.
The three airlines aim to create a yield improvement committee on each sector and progress will be reviewed at monthly meetings of the three commercial directors, who will seek to liaise with senior executives at competing carriers if local initiatives fail to hold, Khoory adds.
While fifth freedom operators from Europe and Asia and independent carriers such as Qatar Airways and Oman Air are blamed for the dramatic fall in yields, evidence suggests established Middle East carriers are dumping excess capacity on the market. One source cites the weekly Boeing 747SP operated by Syrianair from Damascus via Dubai to Madras as the primary force dampening yields on that sector.
Abdul Wahab Teffaha, secretary general of the Arab Air Carriers Organisation, says it is not AACO's policy to interfere in price setting. But this airline-led initiative does mark the first step away from the liberalisation pursued by Gulf Cooperation Council states.
Indian airline sources indicate that authorities there are unlikely to respond as capacity restrictions on third and fourth freedom traffic to the Gulf have maintained high load factors for Air-India and Indian Airlines. Qatar Airways and Oman Air decline to comment on the initial impact and say they will continue to set their own market fares.
Doug Cameron
Source: Airline Business
