MIDDLE EAST

RECONFIGURES

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AT A GLANCE

  • As part of the economic diversification process from oil, tourism will play an increasing role, since countries are also looking at regional tourist spots as a source of growth.
  • Untapped opportunities in the short to medium haul market will be explored with the use of right-sized aircraft.
 

ECONOMIC DIVERSIFICATION

The Middle East has become one of the world’s most dynamic regions when it comes to rapid development of economy, infrastructure and a growing appeal to foreign visitors.

Countries once entirely dependent on natural resources are now opening their doors in an unprecedented way as they diversify their economies, reducing exposure to volatility and uncertainty in the global oil market.

Related to this matter, tourism has become a vital enterprise for investment, and the evolution of the air transport industry plays a pivotal role in its success. Visitors are attracted by the region for a number of different reasons: religion, resorts, shopping, nature and more.

Well beyond the mainstream, now established, centers of Dubai and Abu Dhabi, other tourist destinations such as Antalya, Jeddah and Dahab have been growing in popularity amongst travelers, and will demand connectivity to sustain regional growth.

As the whole region becomes more and more attractive, international visitors start to consider new internal destinations – demanding increased connectivity. At this point, right-sized aircraft are playing a meaningful role in providing such service.

 

2017-2018 INTERNATIONAL TOURIST
ARRIVALS GROWTH (%)

Source: UNWTO, Jan19

SHORT TO MEDIUM-HAUL OPPORTUNITIES

Historically, Middle Eastern airlines have obtained extraordinary growth and relevance mainly for their strategic location as a connectivity hub for long-haul travel. Due to this status, inter-regional traffic currently makes up nearly 90% of all RPKs in the region. However, the small portion of intra-regional traffic is not due to a lack of potential, but rather because of the focus on the region as a global connector business up until this point. When we compare its relevance to other challenging regions such as Africa (which has several intra-regional flow restrictions), it becomes clear that the short to medium-haul traffic in the Middle East has remained quite under explored, and undervalued.

The focus on international traffic over past years has led to an overall unbalanced fleet. The majority of the capacity is allocated in the above 150-seat segment, designed mainly to serve high-density and long haul routes. The short to medium haul routes play a key role in bringing new passengers into the system and distributing them through the network, but are currently served with limited flight options. In fact, around 80% of these markets are served with less than one daily frequency.

MIDDLE EAST INTRA/INTER
REGIONAL TRAFFIC

Source: Sabre, Embraer Analysis
 

As international traffic faces challenges due to geopolitical tensions and traffic restrictions, airlines will strive to find new vectors of growth. Frequency addition and rightsizing within the short and medium haul network present alternatives worthy of advancement, unleashing local demand to its fullest capabilities. Within this context, there will be no aircraft more versatile than jets with 70-150 seats.

OVERCOMING OPERATIONAL CHALLENGES

The intense climate conditions in the region represent somewhat of an operational challenge across all segments. However, for aircraft deployed on the short to medium-haul network, this effect tends to be more prominent, due the intense flight cycling regime, which brings additional associated maintenance costs. New generation aircraft will play a major role in overcoming that factor, subsidizing the intra-regional market expansion.

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