Caution is key for Gulf carriers

03 October 2008
Finding credit to pay for all the new planes will become difficult for all but the largest and wealthiest Gulf aviation operators.

Aviation in the Middle East has performed so strongly for so long that it has appeared immune from the turbulence elsewhere.

While other parts of the industry have been hammered by rising fuel costs, Middle East carriers have continued expanding, placing bigger and bigger orders for new planes.

However, traffic figures for August show that even before the collapse of the US banking sector in September, the summer holidays failed to deliver their anticipated bounce.

Passenger growth dipped sharply worldwide, including in the Middle East. Events in the financial markets in the past month hardly inspire confidence in a swift recovery.

As banks vanish from the aircraft finance market to concentrate on their core business, finding credit to pay for all the new planes will become difficult for all but the largest and wealthiest Gulf carriers.

Moreover, the decline in passenger growth, particularly in the long-haul market, exposes the fragility of the region’s strategy of becoming an international travel hub.

If markets in Asia and Europe remain weak, the Middle East will suffer and, unlike those heavily populated continents, the GCC does not have a large domestic market to fall back on.

The fledgling low-cost carriers could find it toughest of all.

Gulf carriers insist all their aircraft orders are tailored to meticulous expansion plans, and they stress they would not buy the planes if they did not think they could fill them.

No doubt this is true, but the events of August and September have demonstrated that, despite the recent aura of impregnability, Middle East carriers are not immune to global shocks.

Few are making a profit and any further falls in international demand could hit them hard.

They will need to start taking a more cautious approach than they have been used to.

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