Sameena Ahmad, Managing Director, Alpen Capital
Alpen Capital today announced the publication of its GCC Aviation Industry Report which provides a perspective of the GCC aviation sector by presenting the current industry status, key market dynamics, and scope for future growth. It examines the key sub-segments of the aviation market by identifying fundamental growth drivers, significant challenges, and recent trends. Based on reliable third-party estimates, the report also captures the outlook for the GCC’s aviation market. The report also profiles each of the six GCC nations as well as those of the region’s major aviation players.
“Having grown steadily over the last two decades, the GCC aviation industry has outperformed most of the other regional markets. This growth is attributed to the region’s rising population with high disposable income; strong presence of expatriates who travel frequently to their native countries; favorable geographic location; a burgeoning tourism sector; and an underdeveloped railway network in the region. The sector is also enjoying the dual benefits of the liberalization measures adopted by most of the member-nation governments, on one hand, and the opening up of the global aviation market on the other”, says Sameena Ahmad, Managing Director, Alpen Capital.
“The GCC aviation industry is emerging as an important benchmark in the global aviation market as the balance of global aviation gradually shifts away from the traditional markets such as Europe and the US. The region with its sophisticated airports and fastest growing carriers has carved a niche for themselves, globally, through their excellent hospitality and competitive ticket prices. This will go a long way in promoting the overall growth of the aviation sector in the GCC. The growth is also being fueled by strategic development across sectors like infrastructure, tourism, healthcare, education and sports facilities,” says Sanjay Bhatia, Managing Director, Alpen Capital.
The GCC Aviation Industry Outlook
Alpen Capital in its report predicts that the growth in air passenger and air cargo traffic in the Middle East, between 2012 and 2032, is likely to outperform that across all other regions. Air passenger traffic in the Middle East, in terms of Revenue Passenger Kilometers (RPK), is expected to expand at a compounded annual growth rate (CAGR) of 6.7%, while air cargo traffic, in terms of Freight Tonne Kilometers (FTK), is expected to grow at a 7.2% CAGR.
Air passenger traffic on outbound routes from the Middle East is expected to outpace that on traditional routes such as Europe – Europe, Europe – North America, and North America – North America. Within the Middle East, air passenger traffic in the United Arab Emirates (UAE), Saudi Arabia, and Oman is expected to grow at a 6.6%, 6.9%, and 7.5% CAGR, respectively, between 2012 and 2017.
The Middle East aviation market is expected to receive the delivery of 2,610 aircraft between 2012 and 2032, valued at US$ 550 billion. As a result, the total fleet size in the region is expected to increase at a 4.7% CAGR during the period to reach 2850 aircraft in 2032.The business jet fleet size in the Middle East is projected to grow to 1420 from 400 between 2012 and 2032.The Middle East Maintenance, Repair, and Overhaul (MRO) market is expected to grow at an 8.6% CAGR between 2013 and 2022 to be valued at US$ 8.0 billion.
Key growth drivers
Being strategically located at approximately an eight-hour flying distance from two-third of the world’s population, the Gulf acts as a central aviation hub and a key link between the eastern and the western worlds. Further abundant oil reserves in the region ensure a stable fuel supply for the region’s carriers at a cost lower than their global competitors.
An expanding population base in the Gulf particularly that of the foreign nationals who travel to their native countries frequently is likely to propel the growth of the airline operators. Additionally, growing urbanization in the region is also expected to drive the demand for aviation services.
The demand for business and leisure travel by air is slated to rise in the wake of higher income levels across the GCC. Further, an increasing number of wealthy individuals in the region is also likely to trigger the demand for air charter services.
The Gulf countries have embarked upon ambitious plans to develop tourism across segments such as medical, adventure, sports, religious, and business. This is likely to draw more tourists into the region, increasing air travel across the GCC.
Most of the region’s airports and allied infrastructure are undergoing significant expansion to accommodate the growth in cargo and passenger traffic carried by the Gulf carriers. Growing air traffic has triggered an aggressive fleet expansion by the Gulf carriers.
A limited rail network and lack of any other easy and efficient mode of transport in the Gulf is also fueling the demand for aviation services.
The GCC countries have pursued liberalized and progressive aviation policies over the past few years to enhance the transparency and competitiveness of the sector.
International branding and sponsorship - Gulf-based carriers, particularly Emirates Airlines, Etihad Airways and Qatar Airways sponsor sports teams, events, stadiums, and cultural festivals internationally to enhance their brand image and strengthen their customer connect. They are also recipients of several awards which are a testimony of their position as leading premium airline brands in the world.
International alliances and code-sharing agreements - Apart from gaining brand recognition, these memberships assist the carriers in expanding their operations globally, garnering code-sharing agreements, and sharing knowledge with other global airlines. Further, over the past few years, most of the Gulf carriers have entered into code-sharing agreements with several other global airlines to expedite their network expansion.
Growing prominence of International airshows - In the last few years, Dubai Airshow, Bahrain International Airshow, and the Abu Dhabi Air Expo have emerged as networking platforms for the global aerospace industry as a result of the higher purchasing power of the fast-growing Gulf carriers.
In house training facilities for staff - To cater to the growing demand of pilots and other airline staff, Emirates Airline, Etihad Airways, and Qatar Airways are now focusing on imparting training to their staff.
Growing Expertise of UAE in specific segments - The UAE is developing its market positioning in the global MRO and leasing markets through organic and inorganic means.
Increasing role of Middle East banks in the aviation sector - The role of the Middle East-based banks in the aviation financing sector is likely to increase in future, once they gain the required expertise with time. Aviation financing is also seen as an attractive avenue for institutional investors such as sovereign wealth funds, insurance companies, pension funds, and private equity funds in the future.
In-flight entertainment services offered by LCCs - The GCC-based LCCs such as flydubai and Air Arabia, have started offering comprehensive in- flight entertainment means to their customers.
The Gulf is increasingly becoming a competitive market with the existing regional carriers competing among themselves and with the international players for a larger share of air traffic. Competition hampers the transferring of the fuel price volatility to the passengers. Also, with many players, the GCC airspace is becoming congested, resulting in increased operating costs and flight delays.
Lack of secondary airports in the GCC has forced its budget carriers to operate out of the main airports of their respective countries, pushing them into direct competition with the FSCs.
Robust fleet expansion plans of the major GCC-based carriers might lead to overcapacity across the sector, once the new aircraft are delivered.The aggressive fleet expansion by GCC carriers will require an increased number of skilled personnel and staff to maintain the new aircraft. The potential concern of a limited supply of skilled labor may be required to be addressed. Further, as the Gulf-based carriers expand their footprint internationally, securing landing slots at some international airports may become difficult.
Some GCC-based national carriers that enjoy backing from their respective governments are resistant towards their privatization as that would put them in direct competition with privately-owned local and international carriers.
Prolonged global economic uncertainty may have a negative effect on the GCC aviation sector in the medium term.
Adhering to a myriad of environmental norms and policies stipulated by aviation regulators, across the world, may pose a challenge for airline companies in the future.
The attractiveness of the GCC aviation sector far outshines its challenges, making it the place to be in for accelerated growth. The demand for aviation services in the GCC is here to stay for the long term, benefiting all its stakeholders.