The aviation landscape may be changing in the Middle East with carriers facing reduced profits this year and a warning of a “gathering storm’’ from low-cost, long-haul competition.
Emirates president Tim Clark raised the spectre of increased disruption from low-cost airlines in widely disseminated Bloomberg News story based on comments at last week’s ITB tourism fair in Berlin.
Long-haul LCCs such as Jetstar, Scoot and AirAsia X are firmly established in Asia but are now starting to spread their wings further afield. In Europe, Norwegian Airlines is taking single-aisle aircraft to what had been traditionally twin-aisle routes.
This has prompted competitive responses from established network operators such as British Airways owner IAG, Air France’s Boost and Lufthansa’s Eurowings unit.
While firmly refuting rumours of a potential merger with Abu Dhabi-based Etihad as “nonsense’’, the head of the world’s biggest international carrier said predictions he made in the 1990s about long-haul, low-cost carriers were coming true.
“We have players in all arenas — Europe, America, Asia,’’ he told Bloomberg. “It’s a gathering storm.’’
Clark said the issue was being complicated by the responses network operators such as IAG and Lufthansa but he expected increased demand to support much of the growth “after a few years of instability’’.
Also on Clark’s list of problems: political and socio-economic upheavals, including the Trump administration bans on seven mainly Muslim nations, and capacity constraints at the airline’s Dubai hub.
Changing dynamics and the inability to access new markets could see Emirates consider single -aisle aircraft, Clark said, but not during his term.
“I’m quite sure that management behind me will consider all options,” Clark said in what was seen as the executive's strongest hint yet that he might be retiring.
The International Air Transport Association has forecast that the overall net profit for Middle eastern carriers will fall from an estimated $US900 million last year to $300 million this year with a profit margin of just 0.5 per cent.
"Average yields for the region’s carriers are low but unit costs are even lower, partly driven by the strong capacity expansion, forecast at 10.1 per cent this year, ahead of expected demand growth of 9.0 per cent,’’ IATA said.
“Threats are emerging to the success story of the Gulf carriers, including increases in airport charges across the Gulf States and growing air traffic management delays.”
Emirates half-year results released in November were down 75 per cent on the same period in the previous year.
Emirates chief executive Sheikh Ahmed bin Saeed Al Maktoum said at the time that first-half performance continued to be affected by a strong US dollar and that "sustained economic and political uncertainty in many parts of the world has added downward pressure on prices as well as dampened travel demand”.
