Hard landing?

The air industry faces a strong threat from the combination of rising inflation and slow to non-existent economic growth.
COMMENT, Transportation


A recent assessment from IATA director general and CEO Giovanni Bisignani has observed that the air industry in general faces a strong threat from the combination of rising inflation and slow to non-existent economic growth-a concept that has been given the dreaded tag 'stagflation' by economists.

Bisignani has pointed towards the admittedly impossible-to-predict crude oil price hike, the global effects of the US credit crunch and other factors specific to the good health of the air cargo industry: increased competition, the difficulty in selling non-core assets in the current climate and the fact that the aircraft delivery cycle is currently out of synch with traffic demand, thus leading to potential excess capacity.

Contrast the IATA stance with the aircraft order books of the major Gulf airlines and you would be forgiven for thinking that either party had failed to do its sums.

Even given the fact that the IATA statement was more of a warning than a death knell, regional carriers ordered a whopping 344 aircraft in 2007, with Emirates alone committing itself to an order of 140 wide-bodied planes in November. The operator has also just outlined its plans to have a 450-strong fleet in operation by 2020.

Despite the drop in orders for the region in 2008, according to Airbus-unsurprising given that many of the previous year's orders will take some time to be delivered-the advent of Dubai's budget airline scheduled in about a year's time, is bound to result in more purchases.

So what's the answer to this paradox? A lot seems to be resting on the presumption that the economic downturn will be shortlived, but the air cargo industry, especially in the Middle East, looks set to weather the storms.

The region's strategic location is key for the multitude of cargo routes for which the more established Western bases of operations would find it hard to compete, such as in Central Asia and Africa, for example.

It is also clear that the Gulf carriers are hoping to benefit from an expected rise in freight business from the booming economies of China and the Indian subcontinent in the next couple of decades-and the room is also there for any required extra capacity growth in the Gulf's major airports.

Finally, the region's recent and continuing double-digit economic growth will provide the area with a safety net that will not be afforded to the older economic bases of Europe, Japan and the United States.

So while it may seem at first glance that the maths fails to add up, it appears that the Middle East's giants are looking beyond a short-term buffeting and foresee a much brighter and more profitable future ahead.

Edward Attwood is the deputy editor of Air Cargo Middle East & India.

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