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Abu Dhabi, UAESunday 16 December 2018

Middle East airlines tackle overcapacity with lower air fares

Analysts say that issues of overcapacity, price pressures, exchange volatility, security threats and political uncertainties are likely to be affecting all airlines in the region.
Passenger demand growth in the Middle East has slowed to 7 per cent, its slowest pace in 18 months. AFP
Passenger demand growth in the Middle East has slowed to 7 per cent, its slowest pace in 18 months. AFP

Middle Eastern carriers are promoting much lower air fares compared with their international rivals, as the sector struggles with overcapacity in the region.

Research by The National found that economy class passengers booking to fly from London Heathrow in February to Abu Dhabi on Etihad Airways would have to pay just £316.57 (Dh1,476) one way, while anyone travelling to Dubai on Emirates would be charged £403.57 (Dh1,874).

By comparison, a similar flight on British Airways on the same day from Heathrow to Dubai comes in at £1,350 (Dh6,268) and a similar flight on Virgin is retailing at £1,299 (Dh6,032).

A flight on British Airways to Abu Dhabi on the same day is currently being marketed at £1,340 (Dh6,244.90).

Etihad and Emirates held National Day sales, with Etihad offering up to 45 per cent discounts on its fares to 45 destinations, while Emirates announced steep discounts on flights to Kuwait, Karachi, Istanbul and Manila.

And other Middle Eastern airlines are also cutting prices. Last week, Oman Air announced 50 per cent discounts on all its international fares for flights sold between December 4 and 10, while Gulf Air, Saudi Arabian Airlines and Kuwait Airways have been heavily discounting ticket prices.

“Over the last 30 months the fall in oil prices and addition of new Boeing 777 jets along with A380s means that fares have been on the slide,” said Saj Ahmad, the chief analyst at StrategicAero Research.

“While oil stays at below US$100 a barrel, airlines will be hard pressed to hike fares.

“I certainly see prices continuing to fall as competition increases but with that the flip side is that some airlines will find it harder to make money per seat as they discount heavily to snare traffic.”

Emirates has started operating a superjumbo between Dubai and Doha making it the world’s shortest scheduled A380 service and Etihad has added an extra A380 service between Abu Dhabi and New York. Last week, figures from the industry organisation body the International Air Transport Association showed that capacity among Middle Eastern carriers increased by 10 per cent in October compared with the same month a year ago.

At the same time passenger demand growth slowed to 7 per cent, its slowest pace in 18 months as low oil prices and an economic slowdown in the region dampened demand for air travel. This meant that average load factors, a measure of how efficiently airlines can fill seats and generate revenues, fell by 2 percentage points to 70.1 per cent, their lowest level for October since 2006.

“The intra-Middle East market for a number of months has been an overcapacity concern,” said Will Horton, a senior analyst at the Centre for Aviation, a market analysis organisation.

“However, this is not the case for every airline and route.

“You get to granular levels where a certain time of day is much cheaper since the aircraft on the outbound is carrying peak, high-yielding passengers but on the return does not have as many passengers so the flight is cheaper.”

Analysts say that issues of overcapacity, price pressures, exchange volatility, security threats and political uncertainties are likely to be affecting all airlines in the region.

“Emirates is not immune from the challenges,” said John Strickland, an aviation industry consultant at JLS Consulting.

Last month, Emirates Group reported a 64 per cent fall in profit for the first half of the 2016-17 financial year.

lbarnard@thenational.ae

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