As Headwinds Ease, Mideast Airlines Go Shopping
November 15 2017 - 8:41AM
Dow Jones News
By Nicolas Parasie and Robert Wall
DUBAI--Middle East airlines are showing signs of emerging from a
period of heavy turbulence.
At the Dubai Airshow on Wednesday, budget airline Flydubai
committed to buy up to 225 more Boeing 737 Max single-aisle planes
valued at $27 billion.
Its sister carrier, Emirates Airline--the world's largest by
international traffic--on Sunday placed a 40-plane commitment with
Boeing for 787 Dreamliners valued at $15.1 billion at list price,
though buyers typically get discounts.
The deals reflect an upswing in sentiment among executives at
airlines in the Middle East whose earnings have been dented over
the past 18 months by low oil prices, which have hit business
travel.
Demand for U.S. flights this year has been hurt by efforts from
the Trump administration to restrict travel from some Middle East
countries, as well as a temporary ban on carrying laptops and
similar electronics in the cabin on some U.S.-bound flights, over
terrorism concerns. Airlines in the region deferred plane
deliveries to cope with slower growth.
Those headwinds marked a sharp turnaround in fortunes for
airlines that had been expanding heavily. Their growth drew ire
from some U.S. and European rivals, who argued that state subsidies
fuel their expansion--a charge the Persian Gulf carriers deny.
Some of those economic headwinds may be starting to ease. "We
have seen some strengthening in the region," Kevin McAllister,
president of Boeing Commercial Airplanes, said on the eve of the
Dubai Airshow, often a hotbed of plane deals.
Emirates Airline President Tim Clark said, "The whole market is
experiencing an uplift." A strong rebound in recent months in cargo
demand has been a boon to the airline, he said, adding that traffic
on European routes has grown strongly and U.S. demand is
rebounding.
Peter Baumgartner, who runs Etihad Airways in neighboring Abu
Dhabi, said, "The Middle East has been particularly
challenged."
The downturn has forced airlines to reconsider their strategies
and pursue more measured growth, he said. For Etihad, that has also
meant shedding some investments in foreign airlines that helped
deliver larger passenger numbers, but cost billions and were a drag
on earnings. Etihad this week remained on the sidelines of the
aircraft-buying activity.
Mr. Baumgartner said ticket prices were starting to improve on
the back of stronger regional economic growth. The rebound has been
steady, but measured.
"I see signs of progress but not the rebound as for example
after the global financial crisis," Mr. Baumgartner said in an
interview.
The upturn also is being felt at the lower end of the market.
Ghaith Al Ghaith, chief executive of Flydubai, said pricing "has
stabilized" after a period of sharp declines. "There is momentum
for growth in the region, " said the carrier, which this month
received its first Boeing 737 Max 8 single-aisle plane.
The recent upturn in oil prices also could help boost airfares,
he said.
Not everyone is enjoying an easy ride. The region's No. 2
carrier by passenger numbers, Qatar Airways, has been hit by a
protracted diplomatic dispute between Doha and its Arab neighbors.
It has been banned from flying to countries such as Saudi Arabia
and the United Arab Emirates, and has had to reroute some other
flights. Chief Executive Akbar Al Baker this month said the airline
would lose money this financial year.
Questions have also been raised about whether an anticorruption
drive in Saudi Arabia could affect economic activity, and in turn
hurt the region's airlines. Flydubai's Mr. Ghaith said bookings
from the kingdom so far hadn't been affected.
Even though their fortunes are showing signs of improvement,
Middle East airlines aren't abandoning some of their cost-cutting
steps. Emirates and Flydubai, both Dubai-government owned, will
press ahead with a drive to increase cooperation, the airlines'
bosses said, adding that the collaboration so far has been
beneficial.
Etihad is similarly focusing on more-profitable growth. The
airline has ceased flying some unprofitable routes, including to
the U.S., and is introducing charges for seat selection. "In a good
way [the downturn] forced everybody to do some reality checks in
terms of the growth momentum moving forward," Mr. Baumgartner
said.
Write to Nicolas Parasie at nicolas.parasie@wsj.com and Robert
Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
November 15, 2017 09:26 ET (14:26 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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