Middle East Aviation: A Constantly Climbing Market

This is the first article of a 3-part series exploring the Middle East Aviation Market. Further insights can be found in our recent report Middle East Aviation: Transformation, Growth and Future Challenges.

In this article we focus on the rate of growth in the Middle East region since the turn of the century, examining key data points that highlight the transformation taking place.

In 2000, the Middle East ranked globally as the seventh largest region with 70 million seats per annum. This year expectations are for 257 million seats, in touching distance of South Asia which is dominated by the Indian domestic market.

Since 2000, the Annual Average Growth Rate (AAGR) has been 6.8%, which is twice the global rate. And if measuring by Available Seat Kilometers (ASKs) by virtue of the typically longer sector lengths and wide-bodied capacity operated from the region, that AAGR rate increases to just over 9%. Of course, hidden in that regional average are a series of winners and losers.

Whilst two markets dominate - the UAE and Saudi Arabia - their market structures are very different:

  • Saudi Arabia’s domestic services operate on 45% (33.6 million) of total seats
  • UAE’s market is made up of 100% international capacity

Collectively these two country markets account for 61% of all airline capacity in the region, and when Qatar is added in third place the top three are responsible for nearly three-quarters of all capacity in the region. Given the size of the top three country markets and their investment in the aviation sector, it is unsurprising that the AAGR rates are all higher than the regional average. Qatar leads with a very strong 12.5%, implying a potential doubling in capacity every six years. The sustainability of this growth moving forward is an intriguing aspect to consider, especially considering the evolving market dynamics.

Increase in Airlines Operating in the Middle East

Countries that have been growing at above market averages have also faced challenges. In some cases, this is due to geopolitical issues affecting demand, in others economic and market growth has just not been as strong, such as Kuwait and Bahrain where - in the face of increasing competition - local airlines have perhaps struggled to establish long-term strategies.

In line with market growth, the number of airlines operating within the Middle East has increased since the turn of the century. In 2000, 135 scheduled airlines operated services, that subsequently peaked in 2023 with 213 carriers operating. The balance between locally based and non-domiciled regional airlines shows that the number of locally based carriers has doubled in the last twenty years, to 36 in 2023 compared to the 177 overseas based carriers. The current ratio of 4.7:1 compares favorably to the 2000 ratio of 7.4:1; with more locally based airlines operating, more direct employment and income for the local economy is created.

Since 2010, the number of airlines operating in both segments appears to have stabilized, averaging around 160 non-domiciled carriers and around 38 locally based airlines. And although new destinations are continually added, these are typically from the local airlines rather than new overseas carriers entering the market.

Looking as far back as 2000, numerous locally based airlines have been in operation throughout the first quarter of the century, including Saudia, Emirates and Oman Air. Perhaps surprisingly, Etihad was established in 2003 and FlyDubai in 2009, yet both carriers now rank in the top five airlines based on airline capacity. Amongst the non-domiciled carriers plenty have operated continually through the century, with network carriers such as Turkish Airlines, Ethiopian Airlines and KLM ever present. Whilst constant migrant worker traffic has allowed airlines such as PIA, Air India and Biman Bangladesh Airlines to grow their business.

 

Airports Served From Middle East Doubles

Unsurprisingly, airline and capacity growth has resulted in the number of airport pairs increasing since 2000, as the table below outlines, with both locally based and non-domiciled carriers adding new airports on a regular basis. There are now nearly twice as many airports served from the Middle East, although the 2020 high water mark has yet to be reached post-pandemic. Competition between both local and non-domiciled airlines exists on nearly 400 airport pairs (20%), which certainly keeps the market fares competitive, especially when the competition is frequently between legacy and low-cost airlines.

Amongst the major local Middle East airlines, the number of airport pairs served over the years shows a mixed picture, whilst also reflecting the changing mix of carriers in the region and product segmentation. Saudia operates the most airport pairs, with the only domestic market of note in the region, although in recent years some route handovers to FlyNas have seen their total count reduce from a peak of 283 in 2015 to 205 in 2024. This may well change further given the wider national strategy now being adopted in the Kingdom.

Interestingly, Qatar Airways serves more airport pairs than Emirates, although the combined Emirates and FlyDubai network stands at around 251, with just 32 airport pairs served by both airlines, including points such as Riyadh, Karachi and Male. Both Emirates and Qatar operate an average of two flights a day on each airport pair. For comparison, after Gulf Air’s network shrank as

changes in ownership structure reduced their focus to purely a Bahrain base, the airline maintains an average of two flights per day to each airport pair served, highlighting that for all locally based airlines frequency of service is important.

Striving for Profitability

Despite the near constant growth, profitability has not always been possible in such a competitive market, especially amongst the smaller locally based airlines that struggle for market share and where their product offering doesn’t quite match the ever-growing carriers such as Emirates and Qatar Airways.

There is certainly a “bigger is better” feel to the Middle East market with the larger network carriers posting exceptional levels of profitability in 2023. Emirates’ latest six-month results reported a US$ 2.7 billion profit and Qatar Airways (for the same period) a US$1.0 billion profit. With both carriers confident of stronger second halves to the year we can expect record breaking announcements in the next few weeks from those airlines. Unfortunately for the smaller airlines in the region, some of whom are obligated to operate routes that perhaps fulfil more of a social rather than commercial requirement, profitability is more of a challenge.

Oman Air has struggled with profitability - although the airline reduced its losses by 25% in 2023, it has yet to make a profit despite an expensive product offering, expansive network, and previously ambitious plans that are now once again being reviewed. In 2016, the airline paid a record US$75 million to KLM/Air France for a pair of London Heathrow slots, and it remains difficult to see how that price has ever been recovered from the wider network benefit. In today’s market such prices are unlikely to ever be repeated.

Similarly, Saudia - the region’s largest airline - is hopeful of returning to profitability by the end of this year, despite a slowdown in market growth coinciding with expansion into new destinations in the last twelve months. Saudia are now likely to be acquired by the Saudi PIF fund as part of their wider investments across the Vision 2030 project, which may or may not take the issue of profitability away for a while as the airline begins to turn its attention towards a Jeddah base and development of religious traffic to the country.

Like other major regional markets around the world, it’s clear that whilst the dominant carriers in each market can generally be profitable and provide returns to shareholders the Tier Two and smaller carriers are constantly struggling to break even. In North America, United, Delta Air Lines and Southwest consistently deliver profitability. In Europe, Ryanair, IAG, Air France/KLM and Lufthansa deliver shareholder value over an economic cycle. However, for many carriers profitability appears almost impossible and survival is a daily success story.

For many airlines operating in the Middle East, with profit margins right on or indeed firmly below the line, a sudden and significant change in the market could be extremely disruptive and any such change could have many airline CEOs ducking for cover. However, that is exactly what is likely to happen in the next five years as Saudi Arabia ramps up its investment around the Vision 2030 project and the impact is going to be dramatic for all - or is it?

Stay tuned for part 2 of our Middle East Aviation Market series by signing up for instant blog updates below.👇

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