OAG Unveils Analysis Of Fastest-Growing Aviation Markets

A report released Tuesday by aviation analyst OAG, reveals a striking contrast of opportunities and challenges in two of the world's fastest-growing travel markets, India and the Middle East.

With consistently growing demand for air travel, a surge in aircraft orders, steadily increasing inbound tourism, spectacular airport development plans and the enthusiasm of investors for the sector, the Indian and Middle Eastern commercial aviation sectors are expected to achieve overall annual growth of 9% and 10% respectively for several years to come, and together will account for 11% of the world's total aircraft deliveries over the next decade. However, both markets face immense challenges in meeting the expected future growth in passengers and aircraft operations, which require massive expansion of infrastructure and high-performing aviation systems.

In the Middle East, airlines, airports, and air traffic control will need to successfully serve more than four times the 120 million passengers served this year -- yet even the existing aviation systems do not fulfill current demand. In many Middle East countries, aviation systems' quality and efficiency levels are well below international markets such as Europe and Asia. Heavy regulation also has resulted in limited service in terms of route frequency and destinations, as well as high consumer prices.

"In the Middle East, markets such as Dubai have set the stage for reforming their aviation systems, and the region has demonstrated its ability to develop world-class aviation players, such as Qatar Airways and Etihad. However, the region's slow rate of liberalisation and the uncoordinated regional competition for passengers are barriers to continued reforms," said Mario Hardy, Vice President - Asia Pacific, UBM Aviation.

In India, the government's open-sky policy has attracted many foreign aviation leaders to enter the market, spurring rapid industry expansion boosted by the growing population and an the increased demand for international travel and trade, as well as an increasing VFR (Visiting Friends and Relatives) market. However, airlines must contend with insufficient infrastructure and challenging political bureaucracy. It is estimated that in the next decade the Indian market will absorb approximately 316 commercial jets and need three times the number of airports that it has today, whilst at the same time the country doesn't have enough skilled labour to maintain or to fly the aircraft. Additionally, intense foreign competition prevents domestic carriers from international expansion, deeply affecting balance sheets.

"India is amongst the world's most promising aviation market, and the region has already taken steps to address some issues through the recent privatization of airports. Skilled aviation personnel in developed nations with stuttering economies may want to look east for opportunities, but the region is not without risk -- there is significant progress yet to be made in airport modernisation, aircraft maintenance, pilot training and air cargo services. It remains to be seen whether the Indian aviation industry can handle the region's relentless growth, with its Middle Eastern, oil-rich neighbors all too keen to take on more capacity with new fleets of super-jumbos based in the Gulf and hundreds more on order," said Hardy.

The OAG market analysis of India and the Middle East concludes that in order to cut costs, boost efficiencies and spur competition, mergers of the more than 30 competing airlines in the Middle East and India will be necessary. However, mergers of the Middle East carriers are unlikely in the short term because most are government-owned, and therefore more likely to form alliances due to the geographical proximity of many of the carriers including Saudi Arabia Airlines, Qatar Airways, Gulf Air, Fly Dubai, Emirates Airlines and Etihad Airways, all being within 500 miles of each other. These alliances can offer carriers opportunities normally afforded by a merger, such as access to new routes and efficiency savings.

In India the first step toward carrier consolidation is already complete. On June 1, 2011, the merger control provisions of the Competition Act 2002 were brought into effect, allowing "acquisitions of one or more enterprises by one or more persons or merger or amalgamation of enterprises." While this is a significant milestone, companies undertaking mergers or acquisitions must prepare for the challenges:  with more competition in the aviation market, fares will soon be slashed, and the resulting low margins will not cover all expenses and costs, which will create a situation when many of domestic airlines simply will stop operating. Only mergers and acquisitions can solve the problem, but the competitive nature and national pride of the Indian region are currently standing in the way.

FMI: www.oagaviation.com