Turbulent Times

It’s been a mixed bag for Middle East airlines as they battle with regional uprisings on the ground, but UAE profits have soared as passengers flock to safer climes.

On the back of a slew of first-quarter results released last month, it’s clear that economists excitedly spent the past couple of months number- crunching about what the economic impact of the revolutions of the Arab Spring has been, on both their home soil and on the economies they affect. The UAE has confidently stated that it’s been able to gain from the unrest, due to an increase in traffic and business.

Data released at the Arabian Travel Market, held in Dubai in April, stated that Middle East unrest, particularly in Libya, Egypt and Tunisia, had boosted tourism in the UAE. Ali Abu Monassar, chairman of Vision Destination Management, told reporters: “So many of the destinations around us are closed because of the current situation. It’s bad for them, but it’s good for Dubai.”

The UAE boasts three of the biggest regional airlines – flagship carriers Etihad and Emirates, and low-cost giant flydubai – which all play a key role in the movement of people and goods around the Middle East and South Asia.

“The political unrest in parts of the Middle East and North Africa region has undoubtedly affected Emirates, particularly from an operational perspective with flights to Tripoli in Libya suspended indefinitely,” says Ahmed Khoory, Emirates’ senior vice president commercial operations, Gulf, Middle East and Iran, when asked how unrest in the Middle East since January has affected passenger numbers at the region’s biggest airline. “By swiftly adjusting our flight schedules, redeploying aircraft to balance the network and optimise revenue we have been able to keep our other Middle East operations going.”

The situation in Abu Dhabi with Etihad Airways is not very different. James Hogan, the airline’s CEO, says unrest has ultimately contributed to passenger revenue growth. “Etihad announced record first-quarter revenues, despite the challenges presented by unrest in the Middle East and the Japanese earthquake,” he says. “While seat factors fell slightly, passenger revenues grew by 15 per cent on the back of a 10.6 per cent rise in passenger numbers to 1,854,392.”

THE FLIPSIDE

However, according to figures released in March by the International Air Transport Association (IATA), the decline in Middle East traffic led the dip in overall global industry numbers- passenger traffic levels in Egypt and Tunisia were 10-25 per cent below average for the month of March, while the no-fly zone and military action in Libya has halted all air traffic to and from the North African country.

Overall, Middle East airlines experienced a decline in their year-on-year demand as growth slowed from 5.8 per cent in February to 3.8 per cent in March. Illustrating a drop in the number of travellers, compared to February, the demand in March climbed only 0.1 per cent while capacity expanded by 0.8 per cent.

Giovanni Bisignani, IATA’s director general and CEO, told reporters that the tsunami in Japan and the political unrest in the Middle East and North Africa (MENA) both contributed to a loss of demand in the global airline industry in March by two per centage points.

“We continue to closely monitor the situation in other parts of the region and are prepared to act quickly if the situation changes,” Khoory says. Emirates is the Middle East’s largest airline and the world’s largest carrier measured by international capacity.

THE UAE, A HUB

The UAE’s three biggest airlines also happen to be the Middle East’s biggest. That means Abu Dhabi and Dubai are both key travel hubs, with the former being the home of Etihad and Emirates and flydubai operating from the latter. Dubai is also the Middle East’s biggest travel hub for both regional and international flights.

Asked how Middle East unrest has affected international passenger traffic through the hub for passengers travelling to/within the region, Khoory says it’s been positive for Dubai. “Overall visitor numbers to the UAE have increased over the previous year and statistics from tourism boards and Dubai airport have confirmed such a trend.” During the 2010-11 financial year Emirates saw a 14.5 per cent growth in overall passenger numbers to 31.4 million people.

According to Dubai Airports, passenger traffic at Dubai Airport – the world’s fourth busiest hub for international passenger traffic – climbed by 5.8 per cent year-on-year in March, to 4.2 million passengers. However, passenger numbers to the Middle East and Africa fell due to regional unrest – dropping by 23,240 passengers for the Middle East, while African routes saw a decline of 24,402 passengers as traffic was affected by political unrest in these regions. According to IATA, Bahrain, Yemen and Syria represent six per cent of Middle East air traffic, and on the back of unrest passenger traffic fell significantly to these countries.

“Unrest in various countries in the Middle East has certainly affected the volumes of people travelling into those markets. That said, our ability to respond to these situations is a reflection of the growing maturity and underlying strength of the business,” says Hogan.

“Flydubai has made every effort to operate its flights as normally as possible during the period of turbulence in the region,” says Ghaith Al Ghaith, CEO of flydubai. The airline’s first-quarter results were not available. “We continued to monitor the situation in the region closely and made any adjustments to our schedule necessary to ensure the safety of our passengers and crew. Our schedule is always subject to change, depending on the demand from our passengers and the availability of new routes and new aircraft.”

Contrary to Etihad and Emirates, Sharjah-based low-cost carrier Air Arabia reported a 12 per cent year-over-year drop in its first quarter net profit, to $12 million, although first quarter 2011 revenue grew six per cent to Dhs513 million, and passenger numbers increased 11 per cent, to 1.2 million, while load factor grew to 85 per cent from 80 per cent a year earlier. The airline has subsidiary operations in Egypt and Morocco, where unrest has also occurred.

The chairman of Air Arabia, Sheikh Abdullah Bin Mohammad Al Thani, said he was satisfied with the result, as Air Arabia had been “adversely affected” by the impact of political uncertainty. He also said the price of oil is an issue. “Though the region has clearly shown positive signs indicating the emergence from the more serious effects of the global financial downturn, the rise in fuel costs continues to challenge regional carriers.”