/ 14 September 2005

Survival of the fittest in Gulf aviation market

A new airline will soon take to the skies in Kuwait but only the leanest of the Gulf’s growing number of carriers will survive the cut-throat competition in the region’s oil-rich market, analysts said on Wednesday.

Most of the nine airlines owned by the six Gulf Arab states, which this year are forecast to boast $300-billion in windfall oil revenues, depend on government support and tax breaks.

With the exception of Bahrain where Gulf Air is based, all six have their own national carriers. Together, they operate more than 300 aircraft of various sizes and have placed orders for 200 more in the coming decade.

”The size of the regional market is not sufficient for all of them. They must pursue opportunities in the world market,” said Kuwaiti economist Jassem al-Saadun, head of Al-Shall Economic Consultants.

”I believe that some of the carriers will be under pressure soon and only the best will survive,” said Saadun.

Qatar Airways, Dubai-owned Emirates and Abu Dhabi’s Etihad Airways, the leading emerging carriers, operate around 125 planes but have ordered 200 more in deals worth around $53-billion.

”The only way for Gulf airlines to succeed is by pursuing an aggressive policy for the whole Middle East and North African region with an eye on the international market,” Saudi economist Abdulwahab Bu-Dahesh said.

”But they must ensure they operate purely on a commercial basis. The Gulf region is limited but companies can benefit from the current boom resulting from high oil revenues,” said Bu-Dahesh.

Gulf Air, established more than three decades ago by four Gulf Arab states, became the first casualty of tough competition from emerging airlines.

Qatar pulled out of Gulf Air in 2002 as the airline accummulated debts of $700-million dollars. The Abu Dhabi government this week officially requested to withdraw, leaving only Bahrain and Oman.

”The main problem of Gulf Air is that it is owned by several governments and managed by more than one head,” Saadun said.

There are conflicts between the quest of each government to employ its nationals and commercial criteria, he added.

”It is also facing tough competition from emerging airlines, like Qatar Airways and Emirates.”

The company is in the last year of a three-year strategic recovery programme, but Abu Dhabi’s pull-out will certainly leave its future in question.

National carrier Kuwait Airways Corporation has incurred losses in all but one of the past 15 years despite enjoying generous government subsidies.

Kuwait’s Jazeera Airways, established last year as the Gulf’s first completely private carrier, plans to launch its maiden flight on November 16 as a low-fare airline.

It will compete with Air Arabia, established two years ago by the UAE emirate of Sharjah as the Gulf’s first no-frills operator.

Two more private airlines are being set up in Kuwait.

A private Saudi airline company began operations in July offering its services to VIPs.

”The airline industry is not a government business. It must be purely commercial. The new emerging companies will definitely pose a danger to old state-owned carriers,” Saadun said.

Public airlines, especially in Saudi Arabia and Kuwait, still capitalise on several benefits including abundant energy, lack of taxation and citizens who travel more frequently. But these will not last long, he warned.

Emirates, which operates a fleet of 75 large aircraft and has placed orders for 100 more, including 43 giant Airbus A380s, stands the best chance of leading the market, Saadun said.

”Dubai does not only have an airline. It also has a well-developed infrastructure, a large airport and, more importantly, it is open to visitors,” he said. – Sapa-AFP