When Kuwait’s Jazeera Airways was founded in 2004, much of the capital raised to finance the venture came from an initial public offering. Since then, there have been few such IPOs among other Gulf carriers. However, the boldness of that business move could be seen in Monday’s news that Saudi low-cost airline Flynas aimed to raise up to $1.1 billion from its IPO on the kingdom’s Tadawul stock exchange, begging the question: what has changed since the early 2000s?
For some answers, one must look to the Gulf’s changing priorities and wider business environment. To support a growing aviation sector – and economic diversification generally – countries’ fundamentals need to be sold. Today’s GCC meets this criterion – in February, International Monetary Fund Managing Director Kristalina Georgieva described the region as a “bright spot in the world economy” with member states having maintained growth, contained inflation and built strong buffers against economic shocks.
Tourism – that quintessential driver of commercial aviation – also plays a supporting role. From marquee events such as the UAE hosting Expo in 2021 and Qatar’s hosting of the FIFA World Cup in 2022 to steadily rising visitor numbers to dynamic cities such as Abu Dhabi and Riyadh, more people than ever are coming to the Gulf or using its airport hubs to travel further afield. Aviation in the region also has the advantage of strategic government support, such as Saudi Arabia’s Vision 2030 plan for tourism and airport infrastructure development. Last year’s announcement by Dubai about a new $34.8 billion terminal at Al Maktoum Airport revealed the emirate’s long-term commitment to its aviation sector.
In addition, many Gulf carriers' finances are in great shape. In February, Abu Dhabi’s Etihad Airways posted a record after-tax profit of $476 million, more than three times that of 2023, driven by strong passenger and cargo revenue. Similarly, Dubai-based Emirates posted a record $5.2 billion annual profit this month based on bumper travel demand. Unsurprisingly, both carriers want to expand their reach, and IPOs – often an effective way for companies to raise substantial capital – could play a vital role in this.
It is possible that we may soon see more aviation IPOs, but this time for major Gulf carriers. Last month, Sheikh Ahmed bin Saeed, chairman and chief executive of Emirates airline and group, said that if the Dubai government asked the company to list, then he would proceed with it. In March last year, Etihad chief executive Antonaldo Neves told The National that it was important the UAE’s national airline be ready for an IPO at the right time. “We’re working very hard towards that goal," he added.
Certainly, since being publicly listed in 2008, Jazeera Airways went on to achieve much. The low-cost carrier now serves more than 50 destinations and operates a fleet of modern aircraft. The path the Kuwaiti carrier blazed will have been noted by Flynas – and by investors. The Saudi company's IPO sold out in minutes after books opened amid strong demand, according to a Bloomberg report.
No financial strategy is without risk, however. Although an airline’s ambitious fleet expansion could be funded by a successful IPO, market volatility or too much competition between countries and airlines could affect profits. IPO investors like to see long-term profitability; dips in performance could saddle airlines with too many planes, not enough passengers and curb enthusiasm for further listings. There is also the possibility of unforeseeable major events, like that of the Covid-19 pandemic.
Nevertheless, the Flynas IPO is a sign of increasing economic liberalisation in this important part of the Gulf economy. If such momentum is maintained, then a growing aviation sector could have a major knock-on effect across the region – creating jobs, fuelling infrastructure projects and further raising the profile of this strategic region. Given the historic visit of US President Donald Trump to the region this week and the major deals signed in Riyadh yesterday, more economic dynamism can be expected.
