The Arab world's air carriers are emerging from a year they would rather forget. However, there are signs that some of the region's airlines are prepared to move forward, putting business objectives ahead of politics
It was appropriate that this year's gathering of the Arab Air Carriers Organisation was held in Beirut, as most of the member airlines arrived carrying results that were as battle-scarred as many of the host city's buildings.
However, by the end of the event, there was fresh talk among the region's carriers that suggests a real willingness to take difficult restructuring decisions. If these auguries for reform pan out, they could bring about among the region's carriers the type of renaissance which Beirut - the one-time "Pearl of the Middle East" - is currently enjoying.
For obvious reasons, last year was one the Arab world's airlines would like to forget. Even before 11 September, they were in the doldrums, as regional and global economic problems caused lower-than-forecast yields and load factors.
Then came the terrorist attacks - plotted and implemented by a group with ties to the region - effectively ending passenger traffic to the Middle East from the outside world. The end results were traffic growth of only 2.4% (on considerably higher capacity increases), low yields and a cumulative loss of over $400 million for the year. Continuing problems, especially the Israel-Palestine conflict, mean that traffic into the region will continue to suffer.
Not all carriers, however, have been similarly affected. While other airlines racked up huge losses, Dubai-based Emirates continues to prosper. Its results for the year showed an operating profit of 626 million dinar ($170 million) and traffic growth of 17.1%. Unfortunately, the experience of Royal Jordanian, which saw its traffic contract by 8%, was more representative.
However, as in other regions, there seem to be encouraging signs that the poor performance of the past year may prove a catalyst for structural reform, at least among some AACO carriers.
For instance, although its long-promised privatisation appears to be on hold once more, Royal Jordanian continues to reform, having recently reduced payroll costs by 15%. Similarly, Middle East Airlines (MEA) endured pilot slow-downs and other work actions to create a more efficient operation, through both staff reductions and work-rule changes.
Even ultra-high cost Kuwait Airways, recognising its cost disadvantage, is in advanced stages of working with private investors to establish a separate carrier to ply intra-Gulf routes from Kuwait City.
Particularly telling as to this trend was the statement by MEA head Mohammad el-Hout that the region was too small to support so many competing hubs, and that his carrier - once privatised - should be merged with Royal Jordanian and Syrian Arab Airlines. Samer Majali, the head of Royal Jordanian, agrees, saying that a multi-national carrier would make sense for the three-country sub-region.
AACO secretary general Abdul Wahab Teffaha, while stressing that his organisation has no official opinion on consolidation, says that he personally views the potential union as a good idea: "I believe they can merge; their markets are so small and close together."
Government's role
Like El-Hout, however, Teffaha believes a precondition of such a grouping would have to be that the resultant merged carrier be free of government control. "They must either remove government from the decision-making process or privatise," he says.
Indeed, the issue of the multi-national carrier also serves to illustrate that the reform movement is not gaining speed in all parts of the region. Gulf Air - owned by the governments of Abu Dhabi, Bahrain, Oman and Qatar - has been troubled for some time, not least because of competition from its own shareholders. State-owned Qatar Airways ranks among the fastest growing airlines in the world and Oman appears poised to follow its lead.
Oman Air - previously a regional carrier and among the few turboprop operators in a region in which widebody aircraft routinely operate on hour-long flights - announced it will lease three Airbus A330s and a Boeing 767 to link Muscat's 700,000 people with London and the Far East.
Regional aviation insiders doubt that the country can support this level of capacity, and see the decision as one based more on national pride than business objectives. Teffaha agrees: "Gulf Air's problems wouldn't have arisen if its ownership was an enterprise rather than a manifestation of political identity."
Speaking at the AACO meeting, out-going IATA head Pierre Jeanniot advised the gathering, which included government ministers, to be "less concerned with possessing a national carrier and more concerned with whether [your] national economy has access to good air services at competitive prices". Perhaps if this warning is heeded, an Arab airline renaissance will begin in earnest.
Source: Airline Business
