Dubai Air Show

Region’s airlines poised for expansion

 - December 6, 2006, 12:33 PM

With local airline Emirates set to receive more than 40 Airbus A380s, not to mention those examples destined for neighboring competitors Etihad Airways and Qatar Airways, this area will figure prominently in the operations of future very large airliners (VLAs), according to industry predictions.

“The most rapid increase in fleet size [in the next 20 years] will be achieved by airlines in the Middle East,” predicted Airbus in its current 20-year market forecast. Demand in the region, particularly around the Gulf, continues to grow at a high rate, “helping to consolidate Dubai as a major worldwide hub.”

And in a rare moment of agreement with its fierce European rival, Boeing supports Airbus’ judgment. “The Middle East is becoming a sizable destination for Europeans, and conversely, growing middle-classes in the Middle East are expected to travel to Europe for business and leisure,” the North American airframe builder said. Boeing projects that traffic (revenue passenger miles) between the two regions will grow at 5.1 percent per year during 2005-2024 (globally, second only to the combined Asia/Pacific-Europe market, predicted to increase at 5.4 percent annually).

Airbus analysts said current Middle East traffic growth of more than 10 percent annually will continue for some time, but will then decline to a less spectacular 3.6 percent in the second half of the 2004-2023 forecast period, resulting in an overall average annual rate of 7.1 percent. Those estimates take into account projections for 5.6-percent annual growth in seat numbers and a 1.5-percent improvement in annual productivity (the traffic generated per seat).

Middle East-to-Asia Is a Hot Route

Although the relevant numbers appear relatively small, Boeing stressed that, in at least one sector, business could grow by 50 percent in the coming 20 years: “One of the fastest growing regions is Middle East to Asia/Pacific, which will increase from 2 percent to 3 percent as its traffic grows at 6.1 percent over the next two decades.”

“The unique geographical advantages [at the crossroads between Eastern and Western Europe, Africa, and Asia/Pacific] combined with new aircraft capabilities,” will continue to drive growth in the Middle East, said Airbus. “The region’s growing importance as a tourist destination and the strategy to position the major airports as international hubs are also contributing.”

For Boeing, globalization accounts for another driving factor. The U.S. manufacturer has highlighted the expected growth rate by traffic flows to other regional markets, led by 10.2 percent a year on routes to northeast Asia. Only traffic between North America and Southwest Asia (primarily India) will see stronger 20-year market development. It also sees 9.3-percent annual increases on services to Oceania (the southern part of the Asia/Pacific region). Local Middle East regional or domestic flights and operations to North America and Southwest and Southeast Asia will grow at about 5 percent each year, Boeing predicted.

By 2023, Dubai will have become the world’s sixth most-important VLA hub, supporting some 51 aircraft, according to Airbus. Middle East customers will account for one in nine (11 percent) operators and 88 units, or 7 percent of the 1,262 aircraft that Airbus anticipates the world’s airframe manufacturers will deliver by that date.

Assuming the predicted requirements for 238 aircraft, in 2023 the region’s airlines will represent 8 percent of the fleet and customer base for 300-seat-class “intermediate” twin-aisle aircraft, such as the A330-300 and A340, and Boeing 777 and 787-3 (as well, perhaps, as a stretched “787-10” sought by Emirates). In the 20-year market for smaller, 210- to 250-seat-class twin-aisle designs such as the A330-200 and Boeing 767, Middle East airlines will need 120 aircraft, or about one in 16 (6 percent) of all such deliveries, Airbus estimated.

A very slim 2 percent of 2004-2023 deliveries of single-aisle aircraft–249–ill join the region’s operators, which will account for 5 percent of all airlines, according to Airbus analysts. Overall, just under 400 such aircraft will enter the Middle East market before 2015, followed by a further 300 by 2023.

Boeing painted a generally more optimistic picture of Middle East growth, foreseeing requirements for about 870 aircraft. Interestingly, its vision of demand for 88 “747-and-larger” aircraft exactly matches Airbus predictions for aircraft larger than the U.S. quad-jet (currently the world’s largest in-service airliner). Remaining regional demand will split evenly between single- and twin-aisle designs, according to Boeing.

Including other Arab carriers based on the southern edge of the Mediterranean Sea, Airbus sees a combined Middle East and North Africa requirement over the next 20 years for just over 1,000 aircraft, or about twice the number currently flown. It predicted 4.5-percent annual traffic growth in North Africa.

The region will need nearly 400 replacement aircraft by 2023, while more than 600 provide additional capacity. The combined market will need 486 single-aisle aircraft, 317 small twin-aisle designs, 122 intermediate twin-aisle models, and 91 VLAs, worth a total of some $124 billion.

UK engine manufacturer Rolls-Royce sees a larger Middle East and North Africa 20-year market, for 1,400 airliners (of more than 100 seats), of which just over half fall into the broad 150-seat class. It says the combined region also will need more than 400 regional airliners.

Reviewing regional characteristics, Brazilian manufacturer Embraer pointed out that the Middle East encompasses a strongly regulated environment providing “few of the rewards of competition.” Regulations constrain any movement toward privatization of government-owned flagcarriers and particularly forbid overseas ownership of stock.

“Despite this, a few investors are evaluating the creation of a regional feed structure, though [local] conflicts continue to impede the process,” concluded Embraer analysts, who have expressed some encouragement with recent changes. “The number of open-sky airports [such as Dubai] is growing and some governments are opening domestic markets in the hope of pressuring flag-carriers to be more competitive. The number of new and refurbished airports is growing, indicating that Middle East governments are developing a sophisticated air transport system,” they said.