Our analysis of Arab carriers last year was entitled Crisis: what crisis? At that time, the region's airlines were riding high, with strong revenue growth of 11% and traffic rising even faster at 17%. There was also a net profit of $1.5 billion.
In 2008 the region's carriers managed to sustain their momentum, despite the beginning of the slowdown. Revenues surged by over 17% for those carriers in the Top 150 financial ranking. Profit at the operating level even remained over the $1 billion mark. But few will confuse growth with profitability this year with the red ink expected to flow.
According to IATA, Middle East carriers are predicted to post losses of $1.5 billion in 2009. "The region's intercontinental hubs are vulnerable to recessionary impacts in both European and Asian source markets," says the association in its latest forecast.
At the net level, only Emirates, low-cost players Air Arabia and Jazeera Airways, and Lebanon's Middle East Airlines made it into the black in 2008. And after several years of annual profits, fuel hedging losses helped push newly privatised Royal Jordanian into the red in 2008 despite revenue growth of 28% to nearly $1 billion.
The global recession could also delay the move into the black for two of the region's most ambitious players: Abu Dhabi's Etihad and Qatar Airways. Both have been pursuing focused growth plans that are unshaken by the downturn. In a video interview with Airline Business in April, Etihad's chief executive James Hogan said that while the carrier will "not surrender" in its goal to enter profit for the first time in 2010, the market is tough.
A lot will depend on whether the normally strong outbound market from the Gulf in the three months to August performs. "We'll get through summer and see what the final quarter is like," says Hogan. "We're confident we'll come out of this strong."
Qatar Airways is seeking breakeven by 2010 or 2011. At June's Paris Air Show, announcing an order for Airbus A320s, the carrier's chief executive Akbar Al Baker said: "What is happening in the short term will not affect our long-term plans. Our latest order demonstrates Qatar Airways' strong commitment towards continuing its aggressive global expansion strategy.
"We just don't buy aircraft because we want to dump capacity," says Al Baker. "We are adding more than one aircraft a month and we are still growing. Qatar Airways is very clever at shifting capacity from market to market. While there's a downturn in certain markets, there is an upturn in other markets."
With revenues topping $12 billion, Emirates is nearly three times the size of the second largest Middle Eastern player, Saudi Arabian Airlines. However it too is hurting, posting what executive vice-chairman Maurice Flanagan describes as a "modest" group net profit of $406 million for the year to March 2009.Of this, Emirates Airline contributed a $276 million net profit. Contrast this with the $1.3 billion net profit it made in 2007.
The outlook is hazy too, and it could take anything up to 15 months for recovery to set in, says Flanagan. "Things are tough and much depends on the fuel price. I'd guess that all full-service airlines everywhere, and, to a lesser extent low-cost carriers, are suffering from falling yields. We're all, I'm sure, trying to get the balance right between filling seats and economic yields."
Struggling Gulf Air is one of the few carriers openly talking about cutting capacity as it rightsizes its fleet to demand. Others are moving capacity from under-performing markets to better prospects like India. Others are suspected of cutting back less publically.
However, the big three of Emirates, Etihad and Qatar are ploughing on. "Emirates is not looking to reconfigure or cut capacity," says Flanagan. "We are not cancelling any orders, and will average an A380 and a [Boeing] 777 every month for many years ahead. We will be ready for the recovery when it comes."
As a group, the region's carriers are resilient, says Abdul Wahab Teffaha, director general of the Arab Air Carriers Organisation. And traffic on routes both within the Arab world and on those further afield is already recovering. In fact, traffic within the Arab world has virtually never stopped growing during the recession, slowing to zero in September but picking back up to 10% by year-end and sustaining this level up to mid-year.
"You still have segments that are somewhat stable, such as VFR, business and religious traffic, because Arab countries have not gone into recession," says Teffaha. However, carriers more exposed to the less-well performing markets outside the Arab world will feel greater pain. "If carriers are in international markets they will have to bite the bullet."
After seven years of rampant double-digit rises, there will be a slowdown in 2009 but the signs are that the year could still end up with 5-6% traffic growth, says Teffaha.