In the first part of our analysis, we examined the rapidly growing aviation market in the Middle East, highlighting the expansion of LCC services in the region and the airlines adding most capacity. Now, we’ll move on to look at how this rapid growth affects competition and airline profitability, highlighting where the challenges and opportunities lie for existing airlines and new entrants poised to enter the market.
Competition across the Middle East’s leading airlines is increasing, with as much investment in product as network expansion. Aviation has always been a capital-intensive industry; the cost of new aircraft run into hundreds of millions of dollars and the operating costs can be equally eye-watering for both long- and short-haul sectors, especially if the wrong aircraft are assigned to a particular route.
The challenges and scale of investment needed to achieve the required levels of critical network mass are daunting for many private sector investors and for many airlines state support and investment is crucial. This reality is perhaps more clearly acknowledged in the Middle East than elsewhere, though it naturally results in varying levels of competitiveness between countries with differing financial resources.
- Emirates and flydubai are part of the Emirates Group which in turn is owned by the Investment Corporation of Dubai
- Qatar Airways are wholly owned by the Qatari Government
- Etihad are 100% owned by the Abu Dhabi Government through their ADQ sovereign wealth fund
- In Saudi Arabia, both Saudia and the (yet to operate) Riyadh Air are owned by Government agencies, in the case of Riyadh Air through the Public Investment Fund
These ownership structures position these airlines with their countries’ global ambitions, serving not only to promote trade and industry and generate economic wealth but also to achieve profitability. However, given their size, some of these airlines are almost inevitably profitable.
At the same time, mid-market airlines in the region that remain state-owned and serve both local and some specific diaspora flows are inevitably going to be increasingly marginalized. This will, in turn, place increasing pressure on their performance. Since some of these carriers have no (or a very limited) domestic market, the reality is that without either consolidation or deep strategic alliances, their international networks will be under constant risk.
IATA’s recent report on airline profitability highlights the current strength of the airline sector in the Middle East, projecting a profit of nearly US$25 per departing passenger. This figure is double the anticipated profit levels in North America and some three times higher than the expected industry averages for 2025. However, these averages disguise the extremes of performance at either end of the spectrum:
- In 2023, Emirates carried approx. 26 million departing passengers, delivering a profit of over US$104 per passenger (CH Aviation Financial Database)
- In contrast, Oman Air made a loss of US$ 83 per departing passenger during the same time period
Despite Oman Air currently being in the middle of a major transformation project, the stark contrast between the two airlines highlights how challenging it is to survive for the smaller and mid-tier regional airlines of the Middle East.
Assessing Competitive Intensity: The Good and the Challenging
Leveraging OAG’s global aviation data, we conducted an in-depth analysis to evaluate competition levels in the Middle East market. By applying a structured set of criteria, the assessment goes beyond simply measuring how competitive the market is—it also evaluates whether current levels of competition are delivering positive outcomes for both consumers and airline operators.
Comparison of the world’s 50 largest international markets provides a high-level view of where the most consumer choice exists. The table below highlights (for all major regions) key metrics for the largest 50 international services operated in 2024 and reveals how competitive the Middle East is when compared to other markets.
On all three variables the Middle East performs well, although not quite as strongly as the ASPAC region which leads on all three. However, in 2024 with an average capacity of 232 seats per flight and typically 19 flights daily on routes served by at least five airlines, the market appears at a macro level to be as competitive as any other major region globally.
The Herfindahl-Hirschman Index (HHI) is a widely used metric across industries to assess market concentration and competitiveness. In aviation, regulatory authorities often rely on HHI to evaluate how proposed mergers or joint ventures may affect consumer choice and market dynamics. Using production as the key criteria, the index calculates a score ranging from 10,000, where a market is extremely concentrated, through to 100, reflecting a highly competitive industry. Since the aviation sector is very capital intensive scores below 1,000 are rare. However, when applied across various routes and airlines, the HHI provides a more authoritative assessment of market structure and offers valuable insights into the potential effect of any changes in the competitive landscape.
The table below covers the ten largest routes in the Middle East and reflects their HHI score for the April 2024 – March 2025 period. The scale of competition across these routes ranges from the 2,065 score on Cairo to Riyadh (CAI – RUH), a route operated by eight airlines across both the legacy and low-cost segment where competitiveness is very high, to the 6,327 on Dubai to Heathrow (DXB – LHR) where four airlines compete in a more concentrated market.
In comparison to a range of major markets in Europe and the Americas, the largest Middle East markets are broadly more competitive than those seen elsewhere with only DXB – LHR and DXB – DOH at the more concentrated end of the analysis.
Supply and Demand: How Competitive Intensity and Capacity Impact Airfares in the Middle East
In markets with a high degree of concentration, fluctuations in average airfares can be limited, whereas more competitive markets experience greater variability in fares, driven by airlines actively competing for market share.
Beyond competition, changes in capacity - whether increases or reductions - also play a critical role in shaping average fares. By leveraging OAG’s airfare data we analysed the impact on those fares across 20 of the Middle East’s largest routes (the results are plotted below). Capacity increases across all the routes, with Bahrain to Doha (BAH – DOH) reporting a doubling of capacity, while many of the markets featured were seeing capacity growth of between 25 to 50%. The findings highlight how capacity shifts—such as the notable increase on the Bahrain to Doha (BAH–DOH) route—are influencing pricing dynamics.
In most cases, average airfares fell as airlines sought to stimulate new demand in support of that capacity growth; the most notable example being on the Bahrain to Doha (BAH – DOH) sector where capacity doubled resulting in a 23% reduction in the average selling fare during 2024 compared to the previous year. At the other extreme, a 66% increase in capacity on the Doha to Dubai (DOH – DXB) sector resulted in average selling fares increasing by 55% in a market which is amongst the most concentrated in the Middle East when measured on the HHI index. Highlighting how route closures can influence other markets, capacity between Larnaca and Tel Aviv increased by 31% but with other routes seeing capacity drop average selling fares increased by some 38%.
For comparative purposes, we also reviewed those routes in the region where capacity fell during 2024, and where, due to reductions in capacity, it would be reasonable to assume that some increase in average airfares would occur. Across the 20 markets analysed just over half saw average airfares also fall:
- The most impacted market was Moscow to Dubai (DME – DXB): a 2% reduction in capacity resulted in a 37% decline in airfares
- More logically Beirut to Dubai (BEY – DXB): a 16% reduction in capacity resulted in a 33% increase in airfares
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Conclusion: The Growth Challenge
The Middle East market is likely to experience significant disruption as additional airline capacity is added through various airline business models and the creation of new airlines in the region. Their subsequent network aspirations and desire to compete on the world stage as part of flagship sovereign projects, will see a sharp increase in competition in the region. Although there is a very clear growth in demand from emergent communities, growing disposable incomes, wider credit card usage, and the creation of an online travel ecosystem of agents and retail sites, the big question is: can the market grow as fast as capacity?
Given the current global economic climate, potential slowdown of development, and the relative low price of oil - which underpins many investments in the region – it is likely that there will be excess air capacity in the next few years. Align these factors with the high proportion of connecting passengers travelling through the region who typically prioritize price over brand loyalty, the larger airlines will need to compete on product and service differentiation to secure their share of the market.
The launch of Riyadh Air is likely to be one of the most interesting disruptions in the Middle East market in the coming years, alongside the planned growth of rival Saudi airline Saudia and their move to a new base at Jeddah. Although neither of these airlines is likely to challenge Emirates' traffic in the short term, they will create a new competitive landscape as Saudi carriers vie for both transfer traffic and inbound tourism. With Emirates and flydubai increasingly working together and the impending move to Dubai World Central airport, which will ultimately be able to handle 260 million passengers annually, competition is only going to get hotter in an already hot market.
Smaller regional state-owned carriers may claim niche markets, but unless these niches are clearly defined and supported by an adequately sized network, competing with larger carriers will become increasingly challenging. In the low-cost sector, smaller legacy carriers are undoubtedly targets for competition and with lower cost base and a product more aligned to emergent markets, their long-term survival may be severely tested towards the end of the decade.
For the traveler, a seemingly ever-expanding choice of destinations to reach along with increased competition is likely to result in airfares remaining competitive throughout the region. If increased competition leads to lower fares, and with operating costs unlikely to fall, airline profitability will be tested – and those airlines with the largest network mass and lowest operating costs per ASK will thrive, which points to the richer airlines getting richer and the poorer airlines remaining poor!
