The rapid growth of the Middle East airline sector is changing the shape of world aviation.
The Middle East's aviation industry is tipped to grow by nearly 7% per annum until 2010, while doubling every 10 years, making it a market the rest of the world can no longer ignore.
The Middle East airline and airports' rapid growth are changing the shape of world aviation. Understanding the drivers and strategic evolution of this fast-moving market is crucial for all players across the industry.
To recognise this growth, business media company Terrappin will join forces with the Centre for Asia Pacific Aviation (CAPA) to stage the region's first Middle East Aviation Outlook Summit from 27-28 February 2008 in Abu Dhabi.
This event will address the Middle East's growing influence on global aviation and tourism, with several high-level speaker programmes and an accompanying exhibition planned. Abu Dhabi Airports Company and Abu Dhabi Tourism Authority are the host sponsors of the summit, while UAE airline Etihad Airways is the official carrier.
CAPA's recently published Middle East Aviation Outlook Report, states that airlines and airports in the region have the potential to grow at previously unimaginable levels.
It intends to highlight this issue during the summit, which will provide networking and discussion forums for industry figures to get together.
According to CAPA, the forum will also help delegates understand the implications of these developments, which could rewrite the world aviation system. While several contrasts exist in the Middle East, converging aviation goals are also apparent.
There is a great contrast between the relative policy conservatism of the longer established aviation administrations and some newer, rapidly expanding, Gulf airlines and entities.
However, the gap between these differences is closing as liberalisation and privatisation takes hold. Meanwhile, some jurisdictions such as Dubai have assumed a global hub role, while others including Qatar and Abu Dhabi are about to make similar claims.
The Gulf's 'near-perfect' geographic position as an air travel hub has been enhanced enormously in the past five years by aviation liberalisation, which allows intermediate ports to become valuable crossroad hubs. It also enables the introduction of ultra long-haul aircraft, permitting non-stop service to and from almost any point across the world.
Together, these features should help boost the region's major airlines and airports to the forefront of the "Next Generation ("Next-Gen") Aviation" evolution. In this environment, growth rates can be achieved at levels which were previously impossible.
A strong future is backed up by the Middle East's standing as the fastest growing region for passengers and cargo in 2006.
Full year growth for the respective categories were 15.4% and 16.1%, according to the International Air transport Association (IATA).
The Middle East is dominated by five major airports handling more than 10 million passengers, according to Airports Council International (ACI) data, with Dubai the pre-eminent hub. Some 28.8 million passengers - 22% of the regional total - travelled through the Dubai International Airport in 2006.
In total, scheduled airlines increased overall capacity growth to 142.3 million seats in 2006 - a 12.2% year-on-year increase. The region once again handily eclipsed global capacity growth, which climbed 3.4% to a record 3.3 billion seats two years ago.
The intra-Middle East market is about three-quarters the size of the market to/from the Middle East. (By contrast, the intra-Asian market is six times larger than the market to/from Asia.) Financial details are not abundantly available in the Middle East, reflecting the predominant role played by government in the region's aviation sector.
According to the Arab Air Carriers Organisation (AACO), the available financial statements of 10 member airlines revealed a US$94 million operating loss in 2005, despite an 18.2% increase in revenue to $5 billion. Reflecting its different regional grouping, IATA released a new industry financial outlook in December, which forecast a US$5.6 billion global industry profit in 2007.
The report also said the figure would drop to $5.0 billion in 2008. Giovanni Bisignani, IATA's director general and CEO, said: "The challenges get tougher in 2008.
"A favourable economic environment and effective efficiency measures helped mitigate the impact of high fuel prices and underpinned profitability improvements in 2007. With the credit crunch, that is changing.
The cumulative Middle East economy continues to expand robustly, with regional GDP growing by some 5-6% each year, driven in large part by the high price for crude and refined oil.
As a consequence, profitability levels for Middle East carriers is predicted to remain stable at around US$200 million, supported by ambitious route expansion. Against this backdrop, private investment is entering the Middle East airline sector. Recent activity has focused mainly on the Low Cost Carrier (LCC) sector, including Jazeera Airways, SAMA, Nas air and Air Arabia.
The defining demographic of the Middle East countries is their extremely youthful population, with more than half the people aged below 25 years. This will shape not only aviation and tourism policies, but also provide much of the future market as liberalisation opens sectors up to internal air travel.
The internal Middle East aviation market is heavily regulated, although some governments have adopted liberal policies more recently to promote air services and traffic growth.
The UAE, Bahrain, Lebanon, Kuwait and Qatar are the regional leaders, having implemented 'open skies' policies. In most cases, these policies have played a key role in developing their tourism industries and been instrumental to the home carriers' success in gaining access to numerous international markets.
Carriers from the Middle East enjoy a natural geographical advantage in the critical long-haul arena. The latest long-range aircraft technologies (with ranges of 8000 nautical miles) coupled with the region's central position between major global population centres means the Middle East is one-stop to virtually anywhere on the globe.
On the ground, 10 leading Middle East airports are investing $36.8 billion in new airport capacity by 2012.
The developments will provide capacity for an additional 318 million passengers each year - up 292% on current levels, and taking their total airport capacity to just under 400 million.
This influx of capacity, often in concert with the rapid development of home-based carriers' fleets, will change the competitive dynamics in the aviation industry. It will also provide airport developers and equipment suppliers an expansion opportunity without precedent.
The scene is set for the Middle East to be the fastest-growing region for international traffic (passenger numbers) between 2006-2010. Indeed, 6.9% average annual growth, well above the 4.8% world average, is expected, according to lATA forecasts.
For the larger markets, such as Saudi Arabia, it is difficult to project the likely level of traffic growth in a new environment as it moves from a conservative and restricted policy to a more liberal one with new entrants.
The probable outcome, though, is that traffic will be higher than the predicted level. The likely mix of passengers, between long- and short-haul (especially LCC-driven) is important for airports, tourism bodies and the economies as a whole. Similarly, as the nature of the high-growth potential segment is sixth-freedom and similar traffic, much will depend on the rate at which various end-to-end countries liberalise access to their markets.
LCC capacity in the Middle East surged 102% year-on-year in 2006, hitting 3.9 million seats, or 2.7% of the regional total - a trend that is set to continue and most probably accelerate.
Air Arabia is leading the way, and based on posted aircraft orders alone (not including options) the four existing Middle East LCCs are expected to expand their seat capacity four-fold by 2012. The LCCs are not alone in looking to expand their fleets, with the Middle East becoming the hottest aviation sector in the world.
Will the region's longer established airlines and national policies be able to adapt to a new world? Will new entry be sustained? Why are some of the region's airlines growing at ridiculously rapid ("unsustainable", according to some) rates? And why are billions of dollars being invested in neighbouring airport infrastructure?
This is what the first Middle East Aviation Outlook Summit will discuss in great detail. An assembly of up to 250 industry leaders is expected to gather in Abu Dhabi for this event, with participants including government ministers and CEOs from the leading airlines and airports. Investors, suppliers, tourism figures and property developers with interests in the region are also expected to attend.
Key note speakers include Etihad Airways' CEO James Hogan, ADAT's chief executive John Bryers and Royal Jordanian Airlines' president and CEO Samer Majali. Peter Harbison, Centre for Asia Pacific Aviation's executive chairman, and ADAC chairman Khalifa Al Mazrouei will also address delegates during the event.
"We are very excited by the prospect of staging such a groundbreaking event with such a line up of leading figures from the global aviation market," says Symon Rubens, managing director of Terrappin Middle East.
"Abu Dhabi is the perfect venue for this landmark summit in light of the astonishing dynamism and vision of the aviation and tourism sectors in the emirate," Rubens adds.