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Is Middle East growth sustainable?

Another spate of aircraft orders by Middle Eastern carriers has revived the debate over whether their relentless expansion can continue.

Arab carriers committed to more than 200 additional aircraft at the Paris air show in late June. Qatar Airways accounted for 83 of these, including 80 Airbus A350 XWBs and three more A380s, and also revealed a few weeks later at the Boeing 787 roll out in Seattle an order for 30 787s. Qatar requires more aircraft to continue its torrid ascent - the carrier last year rose from 83 to 50 in the Airline Business top 150 world airline ranking and now generates about $2 billion in revenues per year.

Emirates at Paris lifted its commitment to the A380 by eight to a massive 55, giving it the capacity to continue expanding at a 20% or more clip per annum. The carrier is on pace to become at the end of this year the 14th carrier in the world to hit the $10 billion annual revenue threshold.

Etihad, which is now growing at a 200% rate per year and plans to generate $1.3 billion in revenues this year, ordered 12 widebodies and plans to add narrowbodies later this year. Kuwait lessor Aviation Lease and Finance Company ordered seven A320s, 12 A350s and 12 787s. Kuwait Airways has committed to leasing the seven A320s and 12 787s to support its expansion programme.

Two of the Middle East's fledgling low-cost carriers, Kuwait's Jazeera Airways and Saudi Arabia's NAS Air, signed for 30 and 20 A320s, respectively. Two Libyan carriers also made a surprise appearance at Paris with government-owned Libyan Airlines committing to 15 aircraft and privately owned Afriqyah signing for 11 Airbuses.

All the orders, coupled with massive orders revealed during major air shows over the last three years, will allow the region's major carriers to continue growing at the 22% rate they chalked up for 2006. But carriers are increasingly being criticised, in particular from their competitors in Europe and the Asia-Pacific, for overly ambitious expansion plans.

"The amount of airplanes ordered by Middle East airlines is certainly making our heads scratch and everyone else in the industry's heads scratch," says Boeing Capital managing director capital markets development Kostya Zolotusky. "Something will have to give."

According to the Association of European Airlines: "The sheer volume they have on order is a concern to us."

But Arab Air Carriers Organisation secretary general Abdul Wahab Teffaha argues the growth is sustainable: "I don't think they're speculating in placing large orders of airplanes. I don't see over-capacity in the next 10 years."

The Centre for Pacific Aviation has just completed a report on the region that also concludes the growth is sustainable. "Our conclusion is much of it is going to be sustainable because we're in a pivotal time of change for various reasons," says CAPA chair Peter Harbison.

He explains Middle Eastern carriers have a big advantage over airlines from other regions because their hubs offer one-stop connections "from everywhere in the world to everywhere in the world". Unlike their European competitors, Middle Eastern carriers also have the freedom to expand their hubs and open new airports.

"[Global] traffic will grow no matter what. The question is can [Middle East carriers] provide capacity for that growth and can they switch [the world's largest] hubs from Europe and Asia to the Middle East?" asks Teffaha.

He adds the local market also has big growth potential because tourism in the region is soaring and migrant worker and religious pilgrimage travel is increasing. Load factors on regional flights are already 100% during peak periods. "With liberalisation of the Arab market there'll be other growth engines into the region," Teffaha says.

Zolotusky, however, questions: "They're counting on taking other markets' traffic. Is that sustainable?"

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