After tough first half of year, carriers took action to halt falling revenues and find efficiencies across their networks
Aviation year in review: For regional airlines, 2017 proved a mixed lot
For sure, 2017 was a year of two halves for Middle East aviation.
With global economic growth sluggish during 2016 and the start of this year, passenger demand was subdued and airlines took a hit on their bottom lines.
Two pieces of US foreign policy compounded the challenges airlines faced. These were the temporary ban on US entry for people from seven Muslim-majority countries, and the ban on electronic devices in aircraft cabins.
Both policies in the first three months of the year caused a furore that threatened to dent US-Middle East relations and erode airline profitability.
Tim Clark, the president of Dubai’s flag carrier Emirates, said the so-called laptop ban was “hugely disruptive” and caused a 15-18 per cent load drop. In May, Emirates reported an 82 per cent drop in annual net profit. The ban was lifted in July and Emirates has since turned things around, reporting a 111 per cent profit hike for the first half of its 2017-18 financial year.
Still, the impact shook the industry. “While some passengers elected to navigate around the ban by flying to Europe and then the US, it became evident government policies outside the UAE could impact traffic,” said Saj Ahmad, the chief analyst at Strategic Aero Research.
The Open Skies campaign led by the "Big Three" US carriers against Emirates, Etihad and Qatar Airways continued during 2017, albeit more muted. Towards the end of the year, Abu Dhabi’s state carrier Etihad decided to axe its Abu Dhabi to Dallas Fort Worth route in Texas from next April when its codeshare agreement with American Airlines ends.
Meanwhile, the Texas-based Senator Johnny Isakson’s proposal to remove tax exemptions for foreign airlines with operations in the US, while quashed, was a reminder that the competition dispute continues.
The second half of 2017 was more buoyant as airlines took action to halt falling revenues and find efficiencies across their networks. Emirates and its low-cost sister flydubai announced a tie-up in July to expand their codeshare and build a combined network of 240 destinations by 2022. They have launched 45 to date.
Other low-cost carriers sought to tap into rising demand from budget-conscious passengers. Kuwait’s Wataniya ordered 25 Airbus A320s, Jazeera Airways launched new routes and Saudi Arabia’s Flyadeal commenced operations.
New orders were announced across the board, many at the Dubai Airshow in November, demonstrating a more positive outlook for 2018 on strong passenger forecasts.
Air travel demand is predicted to grow by 7 per cent in 2018, and Middle East carriers will see net profits improve to US$600m in 2018, up from $300m in 2017, according to the International Air Transport Association (IATA).
One deal that reflected this optimism was flyDubai’s $27bn order from Boeing for 225 737 Max jets, while the big story from the Airshow was Emirates’ snub of the European manufacturer Airbus. The carrier ditched a hotly anticipated order for new A380 superjumbos in favour of 40 Boeing 787-10 Dreamliners in a deal worth US$15.1bn.
In 2018, the industry will be watching what happens to the now compromised A380 pipeline. Emirates said it has not ruled out an order, but there are technical and pricing issues to be resolved. Airbus will undergo managerial change from next year with the exit of sales chief John Leahy, and chief executive Tom Enders and his chief operating officer Fabrice Bregier in 2019.
The market is also awaiting an update on Boeing’s planned medium-size jet.
“This will likely be the big event of 2018 and [Arabian] Gulf carriers will play a big role in Boeing’s plans,” said Richard Aboulafia, the vice-president, analysis, at the US-based Teal Group.
“As Emirates, Etihad, and Qatar Airways mature, they’ll need to right-size their fleet, focusing on premium passengers and getting rid of discounted seats. They’ll also need to optimise aircraft for MidEast-Europe routes. A 220-250-seat 5,000-mile jet could be a significant part of this process.”
Etihad Airways had a quiet year following its restructuring and the exit of the chief executive James Hogan, but looks to an improved performance in 2018 after shedding Air Berlin and Alitalia and appointing a new group chief executive, Tony Douglas, who starts in January.
Meanwhile, the UAE’s civil aviation authority is restructuring airspace to reduce congestion and increase aircraft movements, in line with rising demand for air travel in 2018 and beyond.