GCC Aviation: Redefining the global game


Kuwait Financial Centre “Markaz” recently published the executive summary of an updated version of their GCC infrastructure series covering: Power, Airports, Seaports, Roads & Railways, ICT and Water. In this installment, Markaz tackles GCC Airports in terms of capacity, challenges, projects, and future expectations.

The GCC aviation industry was abuzz with activity during the last several years because of very high oil prices and the ambitious strategies of its new airlines. With massive support from their home countries, these airlines have quickly become global players and contribute immensely to economic growth.

High oil prices and sustained government support have turned a few GCC airlines like Emirates Airways, Qatar Airways, and Etihad into global airlines. Some Middle East governments have successfully set up a global aviation hub model, which is the transit point of millions of passengers on their way to their final destinations. Passenger traffic in the GCC has grown at a CAGR of 10% between 2002 and 2010—significantly higher than the global traffic growth in the same period which was between 1% and 3%.

The explosive passenger traffic has necessitated the large-scale expansion of existing facilities to cope with the demand. UAE, in particular, has aggressively pursued this model over the last decade and consequently rapidly climbed up in international rankings; with 48 million passengers in 2010, Dubai is now the world’s fifth largest airport. However, Abu Dhabi and Qatar also aim to attain a hub status for the region.

However, the story is not just one of global aspirations, but the catering to existing demand satisfactorily. Current capacity utilization in the GCC (passengers/capacity) stands at over 115%; Bahrain has the most severe case of under-capacity, moving double its capacity in 2010. The UAE, which has seen massive airport expansions in recent years, is the only GCC country, operating with some reserve. Capacity utilization is at 84% due to the completion of Dubai Airport expansions, which expanded capacity from 22 million passengers a year to 60 million with an expectation of further increase to 90 million by 2020.

Consequently, GCC governments have ratcheted up investment in the upgradation and expansion of airports to satisfy existing demand and achieve future strategic goals. These investments are in the neighborhood of US$ 104 billion over the coming few years, concentrated primarily in the UAE; the majority of which is for the Al Maktoum Airport with an estimated cost of US$ 50 billion, due to be completed by 2020.

This high growth is being aided by several factors including aircraft orders, tourism, government spending, low-cost airlines, deregulation, and so on. Massive expansion programs were initiated for both airport infrastructure and fleet expansion.

Airbus predicts that, by 2028, the Middle East fleet will treble in size. Boeing forecasts that the Middle Eastern airlines will require 2,340 aircraft by 2029—a total value of US$390 billion. Boeing also estimates that the regional aviation industry will grow upward at an average of 7.1% a year for the next 20 years. About 43% of the expected aircraft deliveries will be wide-bodies, thus confirming the trend that the Middle East will play an increasing role in global aviation (long haul).

Dubai, Kuwait, and Qatar have at least one airport project on the anvil. Oman has two major airport expansions in Muscat and Salalah, and Saudi Arabia has started to expand the airports of Medina and Jeddah. Bahrain has begun the expansion of its existing terminal but has cancelled a project for two new terminals.

The International Air Transport Association (IATA) has downgraded expected profits in 2011 for Middle East airlines from US$800 million to US$100 million. This is mainly due to unrest in countries such as Bahrain in the GCC as well as Yemen, Egypt, Jordan, and elsewhere. However, this probably excludes major airlines such as Qatar Airways and Etihad since these non-listed airlines do not publish their results.

Currently, there are 37 main civil airports in the GCC region. Of these, more than 30 are in Saudi Arabia and the UAE. Saudi Arabia has four international airports and 22 domestic airports; its international airports account for 85% of passenger traffic.