The global aviation sector has spun 180-degrees from its abysmal performance in 2020 and 2021. To be fair, much of it was for reasons beyond its own making. That pivot though has led to a frantic recalibration of forecasts and expectations from the industry. The International Air Transport Association (IATA), for example, revised its forecast for 2023 saying that it now expects net profits from the airline industry to reach US$9.8 billion this year, more than double that of the US$4.7 billion it had previously predicted in as recently as December 2022.
Major airlines within the Middle East have no small part to play in this boom. Emirates reported its best year yet with a profit of US$ 2.9 billion for the year ended March 31, 2023, compared to a US$ 1.1 billion loss in the previous year (read our exclusive interview with the airline’s chief commercial officer on pg16). Flydubai said that it too recorded a profit of US$327 million for 2022, a year-on-year increase of 43 per cent, while UAE-headquartered low-cost carrier Air Arabia reported a 70 per cent increase in net profit to Dhs1.2 billion for the 12 months ending December 31, 2022.
IATA noted that it now expects 4.35 billion people to get onto an aircraft in 2023, which is not far off the 4.54 billion people who did so in 2019. By virtue of its geographical positioning, the Middle East will be an increasingly important hub for people to catch their connecting flights. Little surprise then that Dubai International (DXB) retained its position as the world’s busiest international airport for the ninth consecutive year, according to the Airports Council International (ACI). There were 66,069,981 passengers who used DXB in 2022, a 127 per cent year-on-year growth. In May this year, DXB too revised its forecast saying that it now expects to host 83.6 million passengers in 2023, a significant increase from its previous estimate of 78 million.
Other airports within the region are also preparing to ramp up their operations. Notable among them is Hamad International which has undergoing a massive infrastructure upgrade with the eventual aim to host up to 70 million passengers annually. Towards the end of last year, it completed the first phase of its renovation project by way of which it can now host up to 58 million passengers. Apart from a new transfer hall, additional high-end retail and F&B options and a host of new lounges, the highlight was the opening of Orchard – an indoor tropical garden in the centre of the terminal which includes more than 300 trees and 25,000 plants. Also last year, Bahrain International inaugurated a new 210,000 sqm terminal which will help increase the airport’s capacity to 14 million passengers.
The ACI has predicted that by 2040, Middle Eastern airports will handle 1.1 billion passengers – more than double the 405 million passengers it did in 2019. Radical and rapid upgrades are therefore required to the airport infrastructure across the region. The highly-anticipated Abu Dhabi Airports’ Midfield Terminal is expected to open within the next few months, though no firm date to do so has yet been shared. It will be the home base for the UAE national carrier, Etihad Airways, and cover an area of 700,000 sqm. It will have an initial capacity to host around 30 million passengers annually, and process around 8,500 passengers an hour. It will have 156 check-in counters and 65 aircraft gates too. The central terminal itself is equivalent in size to 21 football fields put together.
And there are other mega aviation infrastructure projects coming up elsewhere in the Middle East too. While Saudi Arabia is already home to the world’s largest airport in terms of overall size – the King Fahd International in Dammam is spread over 776 sq km – another giant airport is being built in the kingdom’s capital of Riyadh. The King Salman International airport will be spread over 57 sq km and feature six parallel runways. It will be able to accommodate up to 120 million passengers by 2030, and is being designed such that it can increase that number to185 million by 2050.
Building the machine
With Qatar recently hosting the World Cup, Saudi Arabia liberalizing its tourism visa rules and the UAE becoming a model case study as to how business continued to be conducted despite the crippling pandemic, major airlines within the region have uniformly witnessed a growth in demand and have consequently expanded their networks.
“As an airline, we have a strategy of growth. It’s not related to my profit, but it’s related to what I want to be and where I want to be in a certain period of time. To measure an airline’s growth, it’s better to measure it that way because profit alone doesn’t direct our growth. The constant average growth of Qatar Airways has constantly been double digits so we must be doing something right,” Akbar Al Baker, Qatar Airways’ group chief executive, told Business Traveller at a media roundtable along the sidelines of Arabian Travel Market (ATM) in May.
The growth that the airline’s chief executive references was revealed at the ITB Berlin a few weeks prior where it said that it would start flying to seven new destinations this year, resume services to 11 more and increase frequencies to 35 points across its network. That growth will, of course, be supported by the airline growing its fleet – helped by the fact that earlier this year it reached an amicable settlement with Airbus over a legal dispute that it got into with the aircraft manufacturer regarding surface degradation of its A350. That chapter is now closed for Qatar Airways and Al Baker confirms that Airbus will remain in consideration for the carrier. “We have a fleet that includes both Boeing and Airbus. We still have a large Airbus order and a large Boeing order which they both have to deliver. We will grow our fleet by around 15 per cent in the current financial year, if the aircraft deliveries are on schedule,” said Al Baker.
The path that some of the region’s airlines are taking towards their individual growth starkly diverges at some points from their global counterparts. For example, Qatar Airways has indicated a bold decision where it intends to scrap first-class seats on the next generation of its long-haul aircraft. It’s a strategy that is drastically different from that of other major airlines such as Air France and Lufthansa which are focusing on growing their ultra-high-end offerings. But for Al Baker, the focus for his airline’s future would be its QSuite business class offering.
The business class is being revamped by other airlines too within this region. At the ATM this year, SAUDIA unveiled its new A321 XLR aircraft business class suite. Its Thompson Aero’s VantageSOLO product will be similar to what JetBlue uses on its A321LR aircraft serving its transatlantic routes to London.
At the same trade show in Dubai in May, flydubai also unveiled its new business class product called The Business Suite with features such as lie-flat beds and 17-inch 4K built-in touchscreens. “The Business Suite, designed exclusively for single-aisle aircraft, is the latest evolution in flydubai’s business class offering which will see 10 suites introduced to a number of our newest aircraft before the end of 2023. The new seat will offer all passengers in business class direct aisle access, which rivals the business class experience on-board many widebody aircraft,” flydubai’s CEO, Ghaith Al Ghaith, told Business Traveller.
Etihad meanwhile showcased its new business studio product which will debut on its incoming 787 Dreamliner fleet which will arrive in the third quarter of this year. The business studio cabin features a customised version of Collins’ Elements seat, with Etihad being the world’s first airline to roll out an Elements seat on a Boeing 787.
Also sprucing up its premium offerings is Emirates which embarked on a US$2 billion retrofitting project a few months ago that will see it overhaul 120 aircraft including 67 A380s and 53 777s by 2025. That programme will result in the refurbishment of 728 first class suites, the upgrading of more than 5,000 business class seats and the installation of 4,000 of the airline’s premium economy seats which it first announced last year. Its premium economy seats are already available on many of its key routes including New York JFK, London Heathrow, Melbourne and Singapore.
Another regional carrier which is betting on premium economy is Kuwait Airways which is only the second Middle Eastern carrier, besides Emirates, to commit itself to this class of cabin. Its new premium economy and business class seats will be fitted on the carrier’s A330 neo aircraft. It has a total order of seven A330-900 aircraft, having already taken delivery of four A330-800s. The airline carried approximately 3.5 million passengers in 2022 and hopes to raise that to 5 million this year, with plans to break even financially by 2025.
But the premium segment while important, might not deliver the volume business for the aviation industry. That segment would likely be dominated by low-cost carriers. Travel data provider OAG said recently that low-cost carriers now make up nearly a third of overall global airline capacity. Here in the Middle East, Wiz Air has been raising the bar with that model. In a joint venture with ADQ, it established Wizz Air Abu Dhabi and took possession of its ninth new A321 neo aircraft earlier this year. In Saudi Arabia, Wizz Air has opened more than a dozen new routes to the kingdom from European cities including Milan, Rome, and Vienna to Saudi’s major destinations including Riyadh, Dammam and Jeddah.
Another low-cost carrier, Air Arabia, also drastically grew the number of passenger it carried in 2022. At 12.8 million, it nearly doubled the number of passengers it carried last year across its seven hubs including Sharjah and Abu Dhabi, among others. At the end of the first quarter of 2023, it had 68 new Airbus A320 and A321 aircraft.
Building the ecosystem
Beyond airline product innovations and the acquisition of new aircraft, it is strategic alliances and government policies that will mark the growth of the sector. Take for example, a seminal announcement made by two of the biggest carriers in the UAE – Emirates and Etihad – which agreed on a new interline partnership wherein customers of either airline can purchase a single ticket and fly into either Dubai or Abu Dhabi on Emirates or Etihad respectively, and return via the other city’s airport on the partner carrier.
Over in Oman, another move by its national carrier is also expected to have ripple effects on the global aviation sector. Last year, Oman Air announced its intent to join the Oneworld alliance. When it does join the alliance by 2024, it will put the 30-year-old airline in a league of only three Middle East carriers – the other two being Qatar Airways and Royal Jordanian – and 14 full-member airlines globally.
Government support too is crucial, and thankfully, it is forthcoming for Middle East carriers. After all, aviation is expected to be a major growth engine of national economies in this region. For example, the UAE’s aviation sector supports more than 770,000 jobs and contributes an estimated US$47 billion to the country’s GDP. Over in Saudi Arabia, the upcoming King Salman International airport in Riyadh is being backed by the country’s powerful sovereign wealth fund, the Public Investment Fund (PIF). That airport project alone is forecasted to contribute SAR27 billion annually to the country’s non-oil GDP and generate around 103,000 jobs.
For Saudi Arabia, the aim is to connect to 250 cities around the world by 2030 and getting to that figure will require a coordinated national aviation strategy. To that end, the Saudi Air Connectivity Program (ACP) was established in 2021 by way of a Ministry of Tourism initiative to coordinate the activities of the different airlines founded within the country, and also for international airlines seeking to establish routes to the kingdom.
International airlines, specifically North American carriers, are queuing up to ramp up services to the region. One of the biggest is United Airlines which resumed services to Dubai after exiting the market in 2016. Earlier this year, it launched a new nonstop daily service between its New York/Newark hub and DXB thereby becoming the only US airline to offer nonstop flights between Dubai and the US.
“United is the largest US international carrier, by far. We have over 200 widebody jets flying around the globe every day and we have 100 widebody jets on order from Boeing,” said Andrew Nocella, executive vice president and chief commercial officer at United. United has struck a codeshare with Emirates to facilitate its operations to Dubai. “The Emirates connection in Dubai allows us to access entire parts of South East Asia via the Emirates network that we don’t have efficiently on the current United Airlines system,” added Nocella.
It is sound rationale as Air Canada, Canada’s largest airline, also said that it would introduce a nonstop Vancouver-Dubai flight this October, augmenting its current daily Toronto-Dubai service. Air Canada also activated a codeshare with Emirates towards the end of last year that allowed it to expand its reach deep across Emirates’ network.
Building the future
According to IATA, the production of sustainable aviation fuel (SAF) is expected to exponentially increase over the coming years. IATA estimates that in 2022, more than 300 million litres of the fuel was produced – an enormous increase from the 8 million litres that were made in 2016. Encouragingly, it predicted that 5 billion litres will be produced annually globally by 2025. IATA adds that SAF will likely contribute to 65 per cent of the emissions reduction required for aviation to reach net-zero by 2050.
Here in the region, airlines are stepping up to the plate to do their bit too. In May, Emirates committed US$200 million to fund R&D projects focusing on reducing the impact of fossil fuels in commercial aviation over the next three years. It stressed that the fund will not be used to purchase SAF or carbon offsets – which it is already doing parallelly – but will be funnelled exclusively into R&D.
Qatar Airways is also engaged in the conversation around sustainability. “We are playing a role in the research and development of SAF in Qatar University where they are researching the production of SAF from algae,” reveals Al Baker, while being frank about the current constraints on the use of SAF. “The problem with SAF is its availability. When it is available, there are such small quantities of it and it is so exorbitantly expensive that we cannot afford it. There are no economies of scale.”
Economies of scale are crucial for mass adoption given that fuel costs are often the single most major expense for an airline. Emirates, for example, said that fuel accounted for 36 per cent of its operating costs in 2022-2023, and that figure is similar to what United spends (approximately 30-35 per cent) on jet fuel. While oil hedging is touted as a possible solution, it’s not one that United entertains. “Oil hedging is an expensive bet. We have thought about this carefully and it’s difficult for us to predict the price of oil. We use the forward curve like anybody else would in this business. And when we look at the cost of the insurance policy to buy an oil hedge for an airline that is the size of United, we end up moving the market because of the amount of oil that we use. So, we determined years ago that it did not make sense to hedge the price of oil. There are moments in time where that seems to be a small disadvantage, but over the whole cycle, it’s been a significant advantage,” says Nocella.
Volatile oil prices are only one aspect causing a degree of uncertainty in the prospects of the region’s carriers, but none are currently so insurmountable to push the industry off its current course. “[We’re] navigating through challenging times characterised by continued fluctuating fuel prices, disruption to supply chains, rising global inflation and geopolitical unrest, [which] did not dampen our strong performance last year. Flydubai will grow its capacity across the network by 20 per cent between July 1 and September 30, 2023, compared to the same period in 2022. We have grown our fleet of Boeing 737s to 78 aircraft. We will take delivery of up to 15 more aircraft by the end of the year,” says Al Ghaith.
There’s immense optimism for what is to come. Much of that buoyant spirit is represented by Riyadh Air, a brand-new Saudi airline backed by the PIF and helmed by Tony Douglas, the former group CEO of Etihad Aviation Group. Having already confirmed an order for 39 widebody 787-9 Dreamliner aircraft, and an option to acquire 33 more, it has already obtained its ‘RX’ airline designator code ahead of its first passenger flight which is being slated for early 2025 with promises to connect to over 100 destinations from Riyadh. In the meanwhile, a Boeing 787-9 Dreamliner painted in the airline’s distinctive indigo livery conducted a low-altitude demonstration flight in June over the Saudi capital city after which it is named.
In the northwest of Saudi Arabia, another brand-new carrier, NEOM Airlines is expected to take flight next year. Not far away from its base in NEOM, will be the upcoming Foster and Partners-designed Red Sea International airport which will be powered by 100 per cent renewable energy, and is expected to become the region’s first carbon-neutral airport, setting new benchmarks in the process.
The larger question is whether the Middle East will be able to move the needle for the global aviation industry? A glimpse of its ability to do so came through earlier this year when SAUDIA and Riyadh Air together placed a multi-billion-dollar deal to order up to 121 Boeing aircraft in what will be the fifth-largest commercial order by value in the US manufacturer’s history. That Saudi order can potentially support nearly 100,000 direct and indirect jobs and more than 300 suppliers from across 38 states, including 145 small businesses across the US. It’s globalisation at its very best, with this region’s aviation sector in the pilot’s seat.
