_36.jpg)
Kuwait Financial Center “Markaz” recently released its report on GCC Airports as part of its infrastructure research. The authors M.R. Raghu and Layla Al-Ammar note that while many international airports have seen steady or decelerating growth in air passenger traffic, the same has shot forward by leaps and bounds in the GCC, mainly on account of the impressive growth rates seen in the UAE, where passenger traffic has grown at a CAGR of 13% between 2002-2008. Qatar has also made increasing contributions to overall GCC passenger traffic, growing at a CAGR of 22% in the same period to contribute nearly 15% of GCC air passenger traffic in 2008 versus a contribution of 7% in 2002. Total GCC passenger traffic grew at a CAGR of 10% for the period 2002-2008 to 126 mn.
Carriers based in the GCC region benefit from its central location in terms of connection to several destinations across the world. The latest long-range aircraft technologies make it possible to fly long-haul, non-stop from the Middle East to just about anywhere in the world. Besides this, the region also has a short-haul traffic potential being within a narrow body aircraft range of some of the key emerging and fast growing markets in the world, such as China and India.
The Middle East aviation market is also highly regulated, although some governments have adopted liberal policies recently to support the growth in air services and traffic.
The UAE, Bahrain, Kuwait and Qatar have become the regional leaders by adopting the ‘open skies’ policy. This policy has played a key role in the development of the tourism industry in these countries. It has also been instrumental in the success of their home carriers by providing them access to numerous international markets.
According to Meed, there are currently more than USD 50 bn worth of aviation infrastructure projects in the Middle East, planned to cater to rising passenger traffic and freight demand on regional airports. However, the financial crisis of late last year has some industry experts worried that the justification of billions of dollars of aviation infrastructure projects may no longer prevail. Air passenger traffic for the Middle East grew at 7% in 2008, a sharp deceleration from the 18% growth seen in 2007, with much of the slowdown occurring primarily in the final months of the year. Airports which rely heavily on transit traffic between regions (such as Dubai Airport) are expected to experience a sharper slowdown than others. On the flip side, aviation infrastructure expansion has a long gestation period meaning that by the time many of these projects are operational, the downturn may be well behind us. There is also the issue of satisfying existing demand in limited capacity airports such as in Saudi Arabia and Kuwait, where the infrastructure does not satisfy current demand and so expansion is not only justified, but necessary.
Additionally, the GCC’s unique position as a central hub in the world is not subject to cyclicality, i.e. despite the current downturn in the industry, once recovery begins, the region will be uniquely positioned to show impressive growth once again, thereby justifying current expenditure.
Arriving at an investment number based on expected growth in passenger and cargo traffic is difficult as not all investments go into building completely new airports, rather a significant portion of the investment is in the form of expanding existing facilities (for example, adding a runway or hanger or terminal). We therefore employ a supply-side analysis to arrive at an expected investment estimate, taking into account ongoing and announced investments on the GCC’s major airports.
The GCC had a capacity utilization rate of 92% in 2008 (Pax/Capacity); with four countries clocking utilization rates of over 100%, the highest being Qatar where the Doha International Airport is currently operating at a 150% utilization rate, illustrating the exceedingly stretched capacity. Over the next five years, we expect the overall utilization in the GCC to moderate to 80% as new capacity comes on line in addition to a deceleration in air passenger growth in some countries (Qatar, Kuwait, Bahrain). This should bring individual country rates below 100%, however, we anticipate continued stretched capacity in Saudi Arabia as the Kingdom already saw over 40 mn in passenger traffic in 2008; concurrently, the planned capacity expansion is centered on King Abdulaziz International Airport in Jeddah, with a plan to take capacity from the current 13-15 mn to just 30 mn by 2014, i.e. still well below the level of existing demand. According to Zawya Projects, there are over USD 580 mn worth of airport expansion plans in the Kingdom, however, these are targeted at the smaller domestic and regional airports (Taif, Hail, Gurayat etc) rather than the remaining international airports (Riyadh, Dammam, and Al Madina).
Based on this approach, investment in the civil aviation sector is expected to aggregate over USD 45 bn over the next five years. The UAE is well ahead of other GCC countries on this count—its new Jebel Ali Airport project is expected to enhance the country’s capacity by 120 million passengers.
Major projects currently underway in the Gulf region include the USD 11 bn Al Maktoum International Airport (JXB) at Jebel Ali, the USD 6.8 bn expansion of Abu Dhabi International Airport, the USD 5.2 bn upgrade of the King Abdul Aziz, Madinah and Tabuk Airports in Saudi Arabia, and the USD 11 bn New Doha International Airport (NDIA) in Qatar.
The funds required to develop and upgrade the region's aviation infrastructure far outweigh the government’s resources, especially in light of a global downturn and decreasing government revenue. This factor coupled with the growing emphasis on professional management calls for greater participation from the private sector in transport financing and management through either privately-owned entities or public-private partnership (PPP) schemes.
# End #
Kuwait Financial Centre S.A.K. "Markaz", with total assets under management of over KD 950 million (USD 3.3Billion) as of September 30, 2009, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. "Markaz" was listed on the Kuwait Stock Exchange (KSE) in 1997.