Analysis for Middle East

Qantas restructures in a bid to wrest back the initiative in a turbulent world

Qantas today announced a substantial reorganisation of its management structure designed to create greater accountability and transparency among its different business units. This comes at a time when the international aviation scene is in a greater state of turbulence than ever before, with alliance and partnership relationships reaching a critical stage.

Splitting domestic and international operations into two separate business units and giving each its own separate P&L is not a unique strategy in any industry and arguably at a time like this gives the Group a better handle on formulating strategy for the future.

Coming in the wake of local competitor Virgin Australia dividing its domestic and international businesses into what are effectively separate companies (something that Qantas is unable to do, thanks to political restrictions set in the Qantas Sale Act), this does also set Qantas up for something similar in the future.

Jazeera Airways and Air Arabia stick to their models and report double-digit increases in profits

Business is booming for LCCs in the Middle East. The two oldest low-cost airlines in the region – Air Arabia and Jazeera Airways – have both reported profitable first quarters, as the regional political environment cools and oil prices begin to trend back from their highs earlier in the year.

Both airlines have positive outlooks for this year. Jazeera Airways just reported its seventh consecutive quarterly profit – a record run of profitability for the airline – and aims to continue the success with its new strategic management plan (STAMP). Air Arabia achieved a double-digit increase in profit during the first quarter and the carrier plans to continue to enter new markets and launch new business ventures this year.

Etihad Airways gets springboard into Northern Europe with 2.9% stake in Aer Lingus

The United Kingdom is emerging as an end-game country for the Middle East triumvirate: Emirates has firmly planted itself across the country, Qatar Airways is cosying up to British Airways and Etihad Airways’ 2.9% stake in Aer Lingus has the potential to give it a springboard into the UK, codesharing on Aer Lingus’ wide Ireland-UK network.

The purchase is a minor investment at Aer Lingus’ present share price of under EUR1, but it represents an opening gambit for a further stake, as well as to develop a partnership and codeshare arrangements. Etihad has developed large virtual networks and has bought into carriers, but the Aer Lingus deal could come to make the UK/Ireland the highest strategic saturation point for the Middle East network carriers. In that view, Etihad’s stake was as much strategic as it was defensive. For Aer Lingus there is also a possibly warm feeling, as British Airways recharges its Ireland services, post-bmi acquisition.

As Royal Jordanian grows revenue and passengers but lags in profit, CEO Hussein Dabbas to depart

Royal Jordanian Airlines CEO Hussein Dabbas is on his way out of the Jordanian carrier after two and a half years in its top position. Mr Dabbas has led the Jordanian airline since Aug-2009 after spending more than 30 years at the carrier in various positions. He will leave Royal Jordanian at the end of Jun-2012, making way for “new ideas to develop the company”, the carrier said.

He will move to IATA as the industry body’s Middle East and North Africa representative. Mr Dabbas takes over from Dr Majdi Sabri, who will retire from IATA after the leading the association in the Middle East and North Africa region since 2001.

Abdul Rahman Al-Khatib will be the interim CEO while the company seeks a permanent replacement for Mr Dabbas.

Royal Brunei plans long-haul product upgrades while refocusing short-haul to compete against LCCs

Royal Brunei Airlines (RBA) aims to significantly improve its long-haul product next year following the introduction of its Boeing 787 fleet as part of a new strategy to focus on brand in the long-haul market and price in the short-haul market, where it faces increasing competition from LCCs. The long-haul product enhancements will include 18 lie-flat business class seats on the 787s, which will be placed by early 2014 on the carrier’s London, Dubai and Melbourne routes as well as potentially to Hong Kong and Shanghai.

RBA is now slated to receive its first of five 787s in Aug-2013, as CAPA first reported in Nov-2011. The carrier will be the first in Southeast Asia to receive the 787. RBA deputy chairman Dermot Mannion said on the sidelines of the CAPA Airlines in Transition CEO Summit last week that the carrier plans to place into service three 787s by the end of 2013 with the final two being delivered in 1Q2014.

Oman Air reports record passengers, but also record losses

2011 was another expensive year for Oman Air. The carrier reported a record loss of OMR110 million (USD286 million) in 2011, a year that saw the carrier dealing with ballooning oil prices, regional political unrest and some problems with its own workforce.

This is the fourth consecutive annual loss suffered by the carrier. Since the Oman Government took majority ownership in early 2007, the airline has lost a staggering OMR295 million (USD766.9 million). The losses have not been surprising to anyone; the carrier and Government intentionally planned to ramp up expansion in the fast-growing market and then concentrate on profitability, taking the long-term view that setting the foundation blocks early – even if at a loss for some years ­– would yield a healthier profit in the future.

Myanmar set to become Asia’s next big aviation growth market

Myanmar’s aviation market is poised to enter a major period of growth as the country begins to open up following landmark elections earlier this month that were won by Aung San Suu Kyi’s National League for Democracy. The election was seen as a turning point for Myanmar, formerly known as Burma, and the start of a more favourable business environment, including for aviation. Several Asian carriers and airport operators have identified near-term opportunities in Myanmar. The opportunities for all types of carriers – local and foreign, domestic and international, low-cost and full service – face no limitations in the medium term as the Myanmar market is now the most underserved market in ASEAN and perhaps all of Asia.

Myanmar’s two existing international airports, at Rangoon and Mandalay, are to be partially privatised while a recently opened new airport at the new capital of Naypyitaw will soon start to handle international flights. There are also plans for upgrading several domestic airports, many of which lack basic infrastructure.

Asia Pacific airports move up the ranks in 2011, with Beijing this year to overtake Atlanta

The rankings of the world’s busiest airports for 2011 show key developments and lasting changes in global aviation, although the world’s busiest airport by total passenger movements, Atlanta Hartsfield-Jackson International Airport, continued to hold off Beijing, the world’s second busiest airport, in 2011, according to Airports Council International (ACI). It is, however, expected that Beijing, driven by exponential GDP growth, will overtake Atlanta in 2012, ending the airport's 14-year reign in the top spot.

While Beijing Capital is the dominant airport in China, it is on track to become be the world’s busiest hub by the end of this decade, leaving London and even ambitious Dubai in its wake. And new developments will ensure the city of Beijing has an airport in the top spot: its new airport at Daxing, south of Beijing, could have up to nine runways and ultimate capacity to handle around 370,000 passengers per day, or a staggering 135 million passengers p/a. This would increase capacity at Beijing area airports to around 220 million p/a – almost a quarter of a billion passengers.