On the face of it, it is madness to launch an airline now. Global aviation is in crisis, with more than 20 airlines going bankrupt since the start of the year. Oil prices of $135 a barrel and more are wiping out profits and driving weaker airlines to the wall.
Yet in the Middle East, aviation continues to grow strongly. Long-established carriers are adding capacity with record aircraft orders and newer airlines such as Air Arabia are also expanding fast.
Among the newest entrants Bahrain Air, a low-cost carrier, joined the market in February and Kuwait’s Wataniya Airways is due to start flying next year, targeting business and first class passengers.
These are precisely the sectors that have been struggling in Europe and North America, but the Middle East does have reasons to be cheerful.
There are benefits to being located in the world’s foremost oil-producing region. The economic boom is boosting traffic from business travellers, tourists and migrant labour. At 18 per cent, the region’s growth in passengers last year was more than double the global average.
But when even the world’s largest airline in terms of international passengers, Ryanair, warns that fuel costs will wipe out its operating profit next year, it is clear these are exceptional times. Most budget carriers in the region buy their fuel at market rates. Bahrain Air admits it is already operating outside its most extreme fuel cost forecasts, on a business model compiled only in 2007.
If the oil price continues to climb, it will be harder to offset costs without affecting passenger demand. The low-cost model is unsustainable in the long-term under this level of cost pressure.
The Middle East will not see the devastation witnessed in other markets but some airlines will find their business vanishing before them.
It will be most difficult for new entrants to the sector who have not had a chance to establish themselves.