Regional carriers enter talks with regulators over cutting costs

17 October 2008

Discussions focus on re-routing flights to reduce fuel bills and avoid collapse.

Talks are under way to relax air traffic control regulations across the Middle East and North Africa in a bid to cut the fuel bills of the region’s airlines and avert a widely anticipated collapse in the aviation sector.

The Arab Air Carriers Organisation (AACO) is in negotiations with national regulators and international aviation bodies to identify ways they can cut costs for airlines and passengers, in an effort to stimulate growth in the region’s airlines in the face of a global slowdown.

AACO is targeting bilateral airspace agreements between countries, with a view to shortening flight times by allowing airlines to fly more direct routes between airports. This would cut fuel costs for carriers, enabling them to lower prices and revitalise passenger growth.

The organisation is also seeking cuts in airport taxes for airlines, which could also be passed on to the consumer.

“Taxes and user charges have increased enormously, but it is the air routes that are the most important,” says Abdul Teffaha, secretary general of the AACO. “We need to make routes straighter to save fuel and [reduce] costs.”

Teffaha acknowledges that the success of the initiative depends on the willingness of national regulators to make the necessary changes. However, he cites some individual successes in the past as an example of what could be achieved from a series of agreements across the region.

“In 2001, we shortened an air route between Syria and Lebanon by 200 miles,” he says. “The fuel surcharge went down by $55 one-way as a result, a 30-40 per cent cut in the ticket price.”

AACO has identified several routes where cost savings could be greatest, but says the initiative applies to all countries. “We are talking to everybody but have focused on the most important routes,” says Teffaha. “There is one over Libya, one over Saudi Arabia, one between Syria and Lebanon, the route across Algeria to Morocco, and over Sudan.”

AACO has estimated the projected savings on these and other routes, and will put the figures to national aviation regulators at a conference next month in Sharm el-Sheikh, Egypt.

Teffaha says the need for changes has been intensified by recent statistics that show passenger growth in the Middle East dropping sharply in recent months, in line with a worldwide slump in the industry (MEED 30:9:08). “Arab carriers’ growth is slowing and we believe it will slow further,” he says.

The global downturn across the industry will, he adds, result in “a bloodbath in the market, as airlines run to discount fares to increase passenger volumes and stay afloat”.

Squeezed by high fuel costs and a global economic downturn that is discouraging travel, Arab carriers are also coming under pressure to cut inefficiencies in their operations and stimulate renewed growth.

Teffaha is calling for consolidation in the regional market, particularly among the budget carriers. “Soon, I doubt there will be more than Ryanair, Easyjet, Air Asia and Southwest Airlines,” he says, referring to the major budget carriers from Europe, Asia and the US.

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