The strengths of the air travel industry in the middle east include growth in the past decade, technological investments, and location, while the slow growth in the last year, second-tier airlines, oil prices, and politics can be considered as its weaknesses. Tourism, the travel ban lift, and LCCs give opportunities, while growth forecast for the Gulf companies, trade wars, and the potential aviation danger of flying through some countries are considered threats in Middle East's air travel industry.
SWOT ANALYSIS FOR THE AIR TRAVEL INDUSTRY IN THE MIDDLE EAST
1. GROWTH IN THE PAST DECADE
- The Middle East has the highest ratio of order to fleet in service in the world.
- The market’s scheduled airline seat count doubled between 2009 and 2019. In 2018, there was a reported 264.31 million scheduled departing seats from the region, 101% more than 2009.
- Dubai has the busiest airport in the world (DXB), with the Emirates hub taking the top spot.
- Jeddah — Riyadh is the busiest route, with 76,566 weekly one-way seats.
2. TECHNOLOGICAL INVESTMENTS
- Investment in the aviation industry around the Middle East has been substantial for the past decade.
- Several new airports have been built, and existing ones have been modernized. According to Mace, a global consultancy, airport modernization and expansion contracts awarded in the MENA region from 2010 to 2017 amounts close to $38 billion.
- Airlines in the Middle East are also at the forefront of innovation — both network carriers Emirates, Etihad and Qatar — and newer low-cost entrants.
- In October, Emirates announced the launch of what it calls “the world’s first ‘biometric path’” at its hub at Dubai International Airport.
- Another one of the large international carriers in the region — Etihad, the national airline of the UAE — is working with automation technology provider Elenium, and Amazon Web Services to use cloud technology, AI and computer vision to improve the customer’s journey.
- The Middle East is the perfect location to connect the growing markets of Asia, Europe, and Africa.
- A large number of flights from European airports like Amsterdam, Frankfurt, and London, must traverse the Middle East going to Asian destinations like Singapore and Bangkok, with a massive amount of traffic and without other alternatives.
1. GULF AIRLINES' SLOWEST AIRLINE SEAT GROWTH
- The Gulf airlines experienced its slowest airline seat growth for at least a decade in 2018.
- Total seat numbers to/from/within the region increased by just 3.8% year-on-year, slowing down from 6.6% in 2017, and 13% in 2016.
- International capacity grew by only 2.8% (accounting for 84% of the total in 2018), while domestic capacity increased by 9.4% (from 23.3% in 2017).
- Etihad cut capacity, while Emirates and Qatar grew at a low to mid-single-digit rates in 2018.
- Airlines are not adding as much capacity to the region as in the years before.
- In 2018, the average profit per passenger globally was $6.12 versus a loss of $4.46 per passenger in the Middle East.
2. SECOND-TIER AIRLINES ARE STRUGGLING
- Companies in the region are cutting costs by making locals redundant. Smaller carriers are suspending operations, sometimes leaving passengers stranded.
- Low-cost airlines tend to be consistently profitable.
- Governments are becoming less tolerant of heavily loss-making operations.
3. THE OIL PARADOX
- Low oil prices reduce the costs for airlines; however, they also impact the local economic activity, reducing demand for air travel.
- Recently, oil prices are growing, but demand for air travel has yet to recover, eroding carriers’ profit margins.
- According to Muhammad Albakri, IATA's (International Air Transport Association) regional vice president for Africa and the Middle East, the fall of oil prices in the region has pushed countries to more taxation, more fees, more charges on the infrastructure to close the budget gap, which is challenging to airlines.
- The flight schedule of the major airports in the Middle East reflects the regional politics.
- According to BESA, absence of air traffic between Israel, Saudi Arabia, and Egypt to Iran reflects the tacit alliance of the three, while the abundance of connections between Istanbul and Qatar and Iranian destinations reflects the counter-Sunni alliance.
- In June 2017, Saudi Arabia, Bahrain, Egypt, and the United Arab Emirates hit Qatar with an economic and diplomatic embargo, accusing the country of supporting terrorism.
- A blockade was introduced, not allowing Qatar Airways planes to cross the airspace of the four countries.
- Middle East visitors increased by 10% to a total of 64 million in 2018.
- A report released at MRO Middle East in Dubai projects that the Middle East will require $745 billion in aviation services through 2037 to keep up with growing passenger and freight traffic in the region.
- Nearly 218,000 new personnel — 60,000 pilots, 63,000 technicians, and 95,000 cabin crew — will be needed in the Middle East over the next 20 years.
2. TRAVEL BAN LIFTED
- In March 2017, the USA restricted the use of electronic devices on flights to the US from 10 Middle East airports in order to prevent terrorist threats. This four-month ban reduced the demand for US flights on regional carriers.
- After the ban was lifted, regional airlines’ capacity rose 8% and their local load climbed from 1.9% to 71% in June from the previous year.
- The LCC fleet in the Middle East has grown by nearly 50% over the past five years.
- According to CAPA, The Saudi Arabian LCC sector has expanded over the past 18 months due to the initial 11 aircraft delivered to flyadeal, which operates A320ceos and in late 2018 placed orders for 30 737 MAX 8s.
- It is expected that Saudi Arabia should drive further acceleration to the growth rate over the next five years and the UAE should also experience expansion, with Flydubai's 237 737 MAX family aircraft on order.
- CAPA also noted that other markets in the Middle East will also likely attract LCC start-up activity in the coming years; however, any new start-ups will likely be small compared to the existing operators in the main markets of Saudi Arabia and the UAE.
- The LCC market in the Middle East still has several challenges, like regulatory constraints and competition in a market dominated by large network airlines.
- LCCs account for 17% of seat capacity within the Middle East, but there is rapid demand growth.
- According to Jazeera CEO, Rohit Ramachandran, LCC operations in the Middle East are more difficult due to the lack of secondary airports, which is an important part of the LCC model in other regions.
1. GROWTH FORECAST FOR THE GULF COMPANIES
- The Big Three airlines in the Gulf show indication of a significantly reduced rate of growth.
- Contribution of Middle East airlines to growth in global RPKs has disappeared. Weakness in the Middle East reflects the restructuring taking place in the Gulf Cooperation Council states.
- Airlines in the Gulf region are expected to see a combined net loss of $1.1 billion this year, $100 million more than in 2018.
- That equates to an average $5.01 loss per passenger flown, the poorest forecast for airlines in all six global regions assessed by IATA.
- According to IATA, airlines there are going through a process of adjustment and announced schedules point to a substantial slowdown in capacity growth in 2019. Performance is now improving but the worsening in the business environment is expected to prolong losses in 2019.
- Demand growth is expected to be just 2%, compared to a global average of 5%, while growth in capacity is forecast at 0.6%, versus 4.7% globally.
2. PILOT SHORTAGE
- Across the next decade, about 1,500 new pilots will be needed by Middle East operators to fly business aircraft in the Gulf States market. This is based on forecasts by CAE (a training provider) and Honeywell (avionics and engine manufacturer).
- Training centers in the Middle East are not enough to supply the growing demand for future pilots. Because of this, aspiring pilots leave their residence to look for high-quality training abroad and, in many cases, they remain employed there.
- In order to supply the demand for pilots, Middle Eastern airlines are offering pilots better career opportunities and working conditions. Attractive salary packages, excellent roster, and travel options are almost guaranteed for pilots working in an airline located in the Middle East.
3. STRENGTHENING DOLLAR, CURRENCY VOLATILITY, AND TRADE WARS
- According to Mark Martin, head of aviation advisory Martin Consultancy, yields will depend on two predominant factors: the dollar along with other currency movements and the price of oil.
- Uncertainty around Brexit and the threat of trade wars will pressure the growth of carriers in the Middle East since they cause uncertainty, which affects confidence in the future of travel and tourism.
4. POTENTIAL AVIATION DANGER OF FLYING THROUGH SOME COUNTRIES
- OPS Group described the downing of a US drone by Iran as an escalation in the current situation that crosses a threshold for airlines overflying the area.
- They referenced the MH17 flight and the fact that 16 military aircraft were shot down before MH17 became the 17th.
- The FAA instructed US operators not to overfly Iranian airspace due to inadvertent risk to civil aviation. Their statement read: "flights are not permitted in the overwater area of the Tehran Flight Information Region until further notice, due to heightened military activities and increased political tensions."
- Other airlines are following suits, such as British Airways, KLM, Qantas, and Lufthansa.
- Emirates stated that they will take precautionary measures, including rerouting all flights away from areas of possible conflict, while Etihad said that they will decide what further action will be required after thoroughly evaluating the FAA directive to US carriers.
- The UAE’s General Civil Aviation Authority instructed airlines registered in the country to take necessary measures given current risks and airlines were directed to put in place necessary measures to avoid operating in areas that might be dangerous.
- The leader of IRGC’s Aerospace Force claimed the drone was shot down to send a message to Washington, but they could have targeted a US P8 aircraft with 35 passengers on board.
- Safe Air Space rates the following Middle East countries as a dangerous air space zone (Level 1 — Do not fly and Level 2 — Danger exists):
- Syria: Level One, 94% of operators with Avoid/Do Not Land policy.
- Yemen: Level One, 76% of operators with Avoid/Do Not Land policy.
- Iran: Level Two, 39% of operators with Avoid/Do Not Land policy.
- Saudi Arabia: Level Two, 8% of operators with Avoid/Do Not Land policy.
- Iraq: Level Two, 47% of operators with Avoid/Do Not Land policy.
- Egypt: Level Two, 17% of operators with Avoid/Do Not Land policy.
Your research team started by looking for publicly available SWOT analysis of the Middle East Air Travel Industry. We found several SWOT reports for the airlines, but none for the overall market; however, these SWOT analyses gave a very important insight into how diverse the Middle East industry is when it comes to the different challenges faced by companies in each country. With that information in mind, we started to individually research each point of the SWOT, hoping to provide a general but in-depth view of the region. We excluded issues that were pertinent to only one or fewer carriers, such as the Emirates, Etihad and Qatar Airways accusations by US rivals. With this approach, we faced another challenge: what countries are part of the Middle East. Some reports include Turkey and Egypt as part of the Middle East due to their political and religious influence and others did not. This was particularly important when it comes to growth, considering that Turkish Airlines is growing while the Big Three airlines of the Gulf are experiencing the slowest growth in a decade, and that difference leads to conflicting reports. Therefore, to provide the most accurate view, we singled out the Gulf airlines for this specific section.