Middle East airlines expecting more turbulence in 2019 remain optimistic on strong travel demand

Companies foresee oil price volatility, currency fluctuations, escalating trade tensions and increasingly fierce competition clouding the industry outlook

An Etihad plane stands parked at a gate at JFK International Airport in New York, U.S., March 21, 2017. REUTERS/Lucas Jackson - RC148A729010

Arabian Gulf airlines say they expect to face further headwinds in the next 12 months but are optimistic about growth in 2019 as demand for travel remains strong.

Airlines in the region foresee oil price volatility, currency fluctuations, escalating trade tensions and increasingly fierce competition clouding the industry outlook next year. However, the companies said they remain bullish as they focus on expanding into new markets, keeping costs in check and growing their fleet to cater to rising passenger demand for travel.

"We are optimistic about our own growth in 2019," Tim Clark, president of Emirates airlines, told The National this week. "We've seen that the global appetite for travel remains resilient, in spite of the patchy economic growth or geopolitical turbulence. People still want to travel. Consumers will simply re-calibrate their travel plans and we have to stay agile in how we deploy our capacity to best serve that demand."

Middle East airlines' annual earnings are expected to grow by one-third in 2019 to $800 million (Dh2.93bn), up marginally from $600m in 2018 when higher oil prices inflated jet-fuel bills and Gulf hubs faced rising competition, industry body International Air Travel Association said in an outlook report this month.

The trade body expects a "slow recovery" for the Middle East aviation industry next year as Gulf airlines restructure their businesses to address challenges and intense competition from other super-connectors as well as low-cost long-haul operators, said Brian Pearce, chief economist of Iata.

Fuelling their recovery is the improving passenger traffic between the Middle East and North America after a 2017 US administration's ban on electronic devices and passengers from majority-Muslim countries in the region crimped demand, he said.

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“We expect faster growth in Middle East airline’s business driven by reasonably strong growth in travel demand in 2019,” Mr Pearce noted.

Uncertainty, however, remains as to how far a drop in oil prices will affect the airlines' home markets and slow down their recovery, he said. The biggest factors to watch out for in 2019 is the direction of oil prices, strength of US dollar, global trade wars slowing down cargo volumes and congested airspace over the region.

Abu Dhabi’s Etihad Airways, which posted its second consecutive annual loss this year, said it expects the slowdown in growth in the fourth quarter of 2018 to extend into early next year, but the company is upbeat about the outlook for the remainder of 2019.

"Etihad Airways has enjoyed a period of steady growth in the first and second quarters of 2018, however as the global market softened, this growth slowed in the fourth quarter," an Etihad spokesman said. "This is of course not unique to Etihad and is reflective of the situation across the industry. We predict that this trend will continue for at least the first quarter of 2019, however, remain cautiously optimistic for the rest of the year." 

Dubai’s Emirates, the world’s largest airline by international traffic, said despite the geopolitical tensions and volatile oil prices dogging the aviation industry, it will continue to focus on organic growth by connecting city pairs that make “commercial sense” for tourism and trade while eyeing travel connections through its partnership with sister budget-airline flydubai.

“Through such codeshare arrangements as well as our own operations, Emirates will continue to seek opportunities to unlock new markets, tap on under-served demand, and stimulate growth,” Mr Clark said.

Flydubai expects this year's "challenging" operating conditions from a strong dollar, rising oil prices and higher interest rates to continue into 2019, Ghaith Al Ghaith, chief executive of the airline, told The National. The no-frills airline, remains upbeat about the next 12 months as it continues to expand its partnership with Emirates and invest in its fleet.

“Our focus will remain on improving our cost performance, broadening our distribution and optimising our network while continuously keeping our cost management plan under constant review,” Mr Ghaith said.

“We remain optimistic about the new year as we continue to invest in our fleet and
operations.”

Emirates and flydubai will be on track to reach a combined network of 240 destinations by 2022, he said.
This year was also challenging for regional airlines as oil prices hurt local travel demand and squeezed profit margins.

Middle East airlines will increasingly look towards growing ancillary revenue streams to recover fixed costs by not just imposing more fees but also providing a wider range of customer experiences and options, Mr Pearce said.
Plane makers are introducing new fuel-efficient and ultra-long haul planes that will allow direct services between cities where it was previously possible without a stopover. It is threatening the hub model, popular in the region, but the regional airlines are also investing to add such aircraft to their fleets to improve connectivity, Mr Pearce said.
"There will always be city pairs and markets that cant be connected directly in economically viable service," he said. "Low-cost long haul operations will increase but there will still be a role for the super-connectors."