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July 4, 2008

The Credit Crunch 2:Airline movement

Global airline movement appears to be slowing down, according to statistics from IATA. Indeed, the international aviation authority claims a global slowdown in demand began in December 2007, and looks set to continue through 2008.

“Astronomical oil prices are hitting hard. And the buffer of an expanding economy has disappeared. The fortunes of the industry have taken a major turn for the worse,” says Giovanni Bisignani, director general and chief executive at IATA.

However, IATA figures also show that, of all the regions worldwide, the Middle East continues to show the largest increases in passenger demand. Regional carriers saw a double-digit increase of 15.4% in passenger demand for March 2008, although this is a downward step from the 20.4% recorded in 2007.

Emirates: bucking the trend

Consistent growth with some exceptions
Certainly, with the exception of SilverJet, most airlines operating in the region have enjoyed consistent growth in passenger numbers, network, fleet and profits.

Sharjah-based low-cost carrier Air Arabia saw its net profit for the first quarter of 2008 (Q1) reach US$21.2 million, up 81% on the previous year. The airline served 757,000 passengers in Q1, an increase of 31% compared to 577,000 passengers during the same period in 2007.

Adel Ali, chief executive of Air Arabia, admits that the airline industry is facing challenges, but believes that the Middle East market will continue to see further growth.

“The high price of oil, as well as increasing inflation rates, puts additional challenge on the air transport sector across the globe, but the rapid and strong economic growth of this region contributes to a sustained and subsequent market and travel growth,” he says.

Meanwhile, Emirates Group recorded its 20th consecutive year of net profit, with airline profit up 62.1% to AED5 billion (US$ 1.37 billion). According to the airline, there is still a growing market for business and first-class travel.

Emirates success continues
“Despite the long-term forecast of a decrease in the number of passengers travelling in first and business class, I am happy to report that Emirates once again bucked the trend and boosted our seat factor in the forward cabins,” says Sheikh Ahmed bin Saeed Al-Maktoum, chairman and chief executive of Emirates Airline and Group.

“I believe the threat of an economic downturn will be offset for Emirates by the boom in the Middle East, especially the thriving travel industry of tourism and commerce,” he adds.

Sheikh Ahmed’s optimism appears to be shared by other leading aviation players. Lufthansa German Airlines started a business jet service between Dubai and Munich in May. The service will operate six times a week flights until 28 October 2008 from Dubai to Munich on its A319 Business Executive Jet service in an all-business class configuration. Lufthansa Business Jet offers a maximum of 48 seats.

Meanwhile, Royal Jet, the Abu Dhabi-headquartered executive flight services company, is gearing itself up for a busy summer with an expanded fleet capacity, a sales team that has just doubled in size and a large number of new clients.

The airline has recently added a Learjet 60 to its fleet, which already includes other Learjets, as well as a long-range Gulfstream IVSP and two mid-range Gulfstream 300s. Further acquisitions are planned in the coming months.


Look out for more features on the impact of the global credit crunch on the Middle East over the next few weeks.

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