Tight margins call for cost-competitive operating environment in Mideast’s aviation industry

Tight margins seem to be putting a lot of pressure on many Middle East airlines, which underscores the need for a low-cost structure and cost-competitive operating environment.And while some airlines in the region are doing well, overall Middle East carriers are expected to lose $5 per passenger this year — far below the global average of $6 profit per passenger, according to the International Air Transport Association.This concern was raised at the 52nd annual general meeting of Arab Air Carriers Organisation (AACO) in Kuwait recently.“Our message to governments is simple: follow ICAO principles, consult users with full transparency and recognise that raising costs have long-term negative consequences. Aviation’s benefits are in the economic activity that the industry catalyses, not in the tax receipts it generates,” stressed IATA director general Alexandre de Juniac.It is a fact that the region faces a challenging operating environment for the aviation industry, although it had seen a rapid advancement in the region over the years.There are several factors at play in the rise of aviation in the Middle East — the region’s strategic geographic location between Europe and Asia, increasing inbound tourism to the region, and large airport developments across the region.“The region is at the nexus of conflicting geopolitical forces with real consequences for aviation. And airspace capacity constraints have become more extreme,” de Juniac stated.Indeed, air traffic congestion in the region, GCC in particular, remains a major challenge to the Middle East’s aviation industry, which supports more than 2.4mn jobs and generates $130bn in gross domestic product. The average delay per flight attributed to air traffic control (ATC issues) in the GCC region is currently estimated at 29 minutes.Without urgent progress that could double by 2025, costing in excess of $7bn in lost productivity time to passengers and adding over $9bn to airline operating costs, a study by the International Air Transport Association has shown.Passenger demand in Mena, driven by the GCC region, is set to expand by 5.7% every year on average over the next decade and a half, to become a market of nearly 380mn passengers by 2035.Like airlines, airports in the region too have engaged in substantial development projects to supply more capacity. The region’s available airspace and air traffic capability, however, have not kept up with its ambition.Approximately half of the Middle East airspace is reserved for military flights, which obviously adds to the air traffic control congestion.Without an increase in the overall efficiency of the Air Traffic Management (ATM) systems in the GCC through improved airspace design, the region’s world-class hubs may be caught in a gridlock. Traffic congestion often results in flight delays, thereby affecting the on-time performance of various airlines. An important benefit of decreased flight delays is the value of the time saved for passengers.In addition to passenger delay costs, there are also delay costs to airlines, which affect the overall profitability of the airlines. More than 30% of an airline’s operational cost is from fuel consumption, an estimate shows.The fact, however, remains that the region’s geography is a major hurdle towards effectively decongesting its air space. The countries in the region are located geographically very close to one another. Within five or 10 minutes, one will be flying into another air traffic management (ATM) area or may be even more.Another major challenge for the region is that military and commercial aircraft have to be accommodated in the limited airspace. An industry expert told Gulf Times in Seoul earlier this year, “We have been talking to respective militaries through regulators in each of these countries to free up space for commercial use. We believe the military could allow the use of more commercial air space. And of course, the entire redesign of the air space could free up and provide the capacity that is needed.”IATA’s chief also cautioned the region’s aviation industry against global uncertainties and trade war.  “The direction of the global economy is uncertain. Trade tensions are taking their toll,” de Juniac noted.That said, IATA also recognised the foresight of governments in the region in developing airport infrastructure and urged them to harness the power of technology to ensure that the infrastructure operates efficiently for airlines and conveniently for passengers.“Mena governments have understood that infrastructure investments are needed to capture aviation’s economic and social benefits. But adequate infrastructure is not just about the bricks and mortar. The technology that we put into airports is as important. Passengers expect technologies like biometric identification and smart phones to shorten wait times and make airport processes more efficient,” said de Juniac.Calling on the region to continue to take a leading role in using technology to drive improvement in the passenger experience, IATA highlighted recent projects at airports including Doha and Muscat that use biometric technology.The projects are aligned with industry’s ‘One ID’ vision for biometric identification which enables paperless travel. Undoubtedly, aviation has the power to create significant economic prosperity. People want to do more cross-border travel these days. A safe, secure, efficient and sustainable air transport industry pays huge social and economic dividends. And economies in Middle East are thirsty for the benefits that aviation brings.But despite the vast benefits enabled by aviation connectivity, the operating environment for airlines in Middle East still remains challenging.n Pratap John is Business Editor at Gulf Times