The Middle Eastern airlines are expected to triple their passenger capacity over the next 20 years, even as the megacarriers face challenges to maintain their profit margins, partially on competition from Turkey, India and China, according to Boston Consulting.
Moreover, Qatar Airways is expected to be among the top 20 flyers in the world the next five years, the Boston Consulting said in its latest special report, ‘Middle Eastern Megacarriers: Gaining Altitude’.
Finding that the Middle East has become entrenched as a hub for long-haul travel, it said passenger flows to and from the region has increased by 45mn passengers over the five-year period from 2005 through 2010.
They are expected to increase by another 45mn passengers over the next five-year period from 2010 through 2015. Such increases reflect a compound annual growth rate of 11% over the total 10-year period, it said, adding passengers flow to and from the region is slated to reach about 140mn by 2015.
“Led by the Middle Eastern megacarriers, airlines in the region are expected to triple their passenger capacity over the next 20 years,” the report said.
Although the Middle Eastern megacarriers share many of the same low cost advantages such as no corporate and individual income taxes, as well as low infrastructure access and personnel costs, yet they share a common challenge: the need to manage the pressure that their aggressive expansion plans exert on their margins, Boston Consulting said.
Finding that Emirates, Etihad Airways and Qatar Airways are looking to expand their capacity beyond the expected growth in demand, it said ultimately Middle Eastern airlines must fill their added seats, either by expanding their networks or by capturing a greater of their existing markets.
However, they are confronted with threats from five fronts, which include competition from full-service legacy airlines, aiming to leverage their networks and schedule advantages to attract more-profitable business travellers who prefer non-stop flights at business-friendly departure times. Boston also forecast greater regional competition from Emirates, Etihad Airways and Qatar Airways for connecting traffic to non-hub destinations in the Middle East and for intercontinental travel.
Factoring in the competition from low-cost carriers within the Middle East such as flydubai and Air Arabia, the report said “the emergence of airlines in Turkey, India and potentially China embrace the same type of advantaged hub business models being used by the Middle East megacarriers.”
Moreover, Boston, also view the possibility that foreign governments will restrict market access or alter pricing regimes.
On the industry implications, Boston said it will be a challenge to match the sheer size and reach of the networks run by Middle Eastern megacarriers, which will increasingly “own” certain intercontinental traffic flows. “The next five years will see even greater levels of competition in the airline industry, as Middle Eastern megacarriers add capacity well ahead of underlying demand,” it said.
They will continue to expand their networks aggressively, add more frequent flights to existing destinations, and upgrade their fleets to larger, more fuel-efficient aircraft so that they can extend their cost leadership, according to the Boston Consulting Group.
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