Opportunities seen for aviation sector in Middle East

Expect aggressive expansion in the Middle East, as new technology and geography create a perfect storm of opportunity for aviation in the region.

That’s according to John Grant, executive vice president at aviation intelligence and research firm OAG. The firm has released a new report examining the international airline industry, and granted an interview with Gulf News Journal. He said the importance of the region cannot be understated in terms of global travel.

“The Middle East is right in the middle of the aviation world. The aircraft being built and developed today have the capability to reach every market in the world, nonstop, from the Middle East,” he said.

The organization argues that industry consolidation will occur in most markets, coalescing around three powerful players. In the Middle East, those carriers are Emirates, Qatar Airways and Etihad Airways. Saudi Arabian Airlines, from a seat capacity standpoint, is larger than Etihad. However, much of its traffic is regional and domestic routes, primary serving Hajj and other pilgrimage traffic.

“The relative size of Etihad is something we tend to forget. They are relatively small compared to the industry,” Grant said. “That is partly a testament to the power of the brands they have created. Everyone thinks they are much larger than they actually are.”

He also cautions investors and observers to beware of discounting the power of Chinese influence in the region. He notes that Chinese influence in Africa is strongly growing, and all aircraft departing China by necessity pass through the Gulf region to access this critical market.

OAG states that U.S. carriers will attempt to expand into the growing air travel market in the Middle East, but will have to expand a significant head start by the Gulf carriers.

Since 1996, Gulf carriers expanded to new markets from their regional hubs, capitalizing on opportunities missed by the largest carriers. The U.S. airlines have instead chosen to focus on international alliances to expand reach, instead of out-right direct expansion.

The three largest Gulf carriers have increased their market share in the region to upwards of 40 percent between 2013 and 2014, a sharp increase from 1996, when the carriers only controlled about 10 percent of the market.

The airlines have done this by connecting long-haul and regional airports through hubs.

Throughout the rest of the world, the air travel market has consolidated dramatically. This is a trend the research firm expects to continue.

“There are currently more airlines than can realistically exist in a truly global market where barriers are eased. Our analysis shows that in time, it’s reasonable to expect a major consolidation of airline carriers globally,” Grant said.

The authors of the paper believe that Gulf-carrier dominance in the region could be challenged in the region by American carriers, eventually.

"U.S. carriers are pursuing international growth, just not in all markets. Their focus appears to have been on those markets geographically closest."

Grant said GCC-based carriers do not have the luxury of falling back on domestic markets to support international expansion. To do this, the GCC airlines must focus on product, connections, reliability, and services to compete on a global scale.

The report is available through free download (with registration) here: http://www.oag.com/Insight/Free-Reports/fight-global-markets?trackingSourceCodeId=35990