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20 Dec 2013

Middle East flying high

Georges Elhedery

by Georges Elhedery

Head of Markets and Capital Financing, Middle East and North Africa, HSBC

Middle East flying high

Airlines in the Middle East are expanding to capitalise on the expected growth in air travel

For centuries, the Middle East provided obvious trade hubs for merchants as they travelled between the East and the West. This pattern is being repeated now, as air travel in emerging markets takes off. The focus of the airline industry is shifting east and the Middle East’s prime location at the crossroads between Asia, Africa and Europe means it is once again an important gateway for travel.

The rapid economic growth of emerging markets such as China has led to an increase in wealth and created a growing middle class that is keen to see the world. Since 2007 air travel in emerging markets has risen by 55 per cent*, and this trend is expected to continue.

The Middle East provides convenient stop-offs for many long-haul flights. Two billion people live within a 4.5-hour flight of Dubai

The Middle East provides convenient stop-offs for many long-haul flights.  Two billion people live within a 4.5-hour flight of Dubai. An added attraction to transfers in the region is the lack of restrictions on night flights. Dubai International is a hive of activity in the early hours of the morning when some of its European rivals are at their quietest. The growth in transit passengers has combined with an influx of business and tourist visitors to the region. Middle Eastern air travel has grown by an average of 10 per cent over the past decade. Industry forecasts suggest the region will remain central to air traffic growth over the next two decades.

The landscape has changed dramatically. In just a few decades, Dubai’s airport has been transformed from a single 1.8km runway made of compacted sand, to the second busiest airport in the world in terms of international passengers. In 2015 it is expected to overtake Heathrow.

Airports across the Middle East, including Saudi Arabia, Kuwait, Bahrain, Oman and Abu Dhabi, are investing in expansions and upgrades as they try to build the infrastructure to cope with the expected increase in passenger numbers. 

The first phase of Dubai’s second airport was opened in October and the airport could eventually become the biggest in the world. It is being built to handle up to 160 million passengers a year and 12 million tonnes of cargo. Two major events are set to boost the numbers flocking to the Middle East’s airports in future years. Qatar is to host the FIFA World Cup in 2022, while Dubai recently won the bid to host the World Expo 2020 which is expected to attract 25 million visitors.

Sky is the limit

  • 2 billion people within 4.5-hour flight of Dubai
  • 55 countries within 3.5-hour flight of Turkey
  • 57.7 million passengers handled by Dubai International in 2012
  • Traffic to and from Middle East up 236 per cent since 2000
  • Orders at the Dubai Airshow 2013 totalled USD206.1 billion

Sources: HSBC Global Research, Dubai Airport, Airbus, Dubai Airshow

Airlines in Middle East are expanding aggressively to capitalise on the expected growth in air travel and bumper orders were placed by several of the region’s carriers at this year’s Dubai Airshow.

A favourable geographical location has also benefitted the aviation industry in nearby Turkey. Around 55 countries are less than a 3.5-hour flight from Istanbul.

But while Turkey’s international passenger traffic is growing, it is domestic air travel that has been the biggest driver of passenger numbers.  Its domestic aviation market has ballooned from 4.6 million passengers in 2003 to 32.4 million last year. Budget airlines, which arrived relatively recently in Turkey, have helped make flying more affordable for the mass population. The penetration of low-cost airlines remains relatively low, suggesting further growth potential.

One hurdle facing the Turkish aviation industry is airport capacity constraints. A new airport is planned to be built but it is not expected to become operational until the end of 2019 at the earliest.

Economic progress coupled with favourable demographics mean Turkey and the Middle East are well positioned for further expansion as transport hubs, so long as airport expansions can keep pace with demand. The growth in GDP per capita in these regions far outstrips the global average. People in these countries are getting wealthier, increasingly living in cities and developing an appetite to travel.

With the lion’s share of growth in the world’s middle class expected to come from Asia in the next couple of decades the redrawing of the global air travel map looks set to continue. Both the Middle East and Turkey will be hoping to play important roles.

*According to Airbus and the OAG analysis

This article originally appeared on the Financial Times on 20 December 2013.

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