Middle East carriers are expected to deliver a strong financial performance in 2023 and 2024, with IATA pointing out that they have been swift to rebuild their international networks and to restore their super-connector hubs in Abu Dhabi, Doha and Dubai.

To that end, IATA says, capacity in the region is expected to grow faster than demand in 2024, but with more efficient fleets, net profit margin has potential to increase slightly.

Overall, IATA expects the region’s airlines to post net profits of $2.3 billion for 2023 and $3.1 billion for 2024. That would equate to a net margin of 4.3% for 2023 and 4.8% for next year. Demand in RPKs is expected to increase 35% this year over 2022 and 6.3% next year over 2023, while capacity in ASKs is expected to grow 10.7% in 2024 versus 2023.

At the annual meeting of the Arab Air Carriers Organization (AACO) in Riyadh in November, secretary-general Abdul Wahab Teffaha noted that the airline industry globally would end 2023 “as close as it can be to the pre-COVID level of air transport’s activity” and exceed it in 2024.

He said the total number of passengers for 2023 was expected to reach 300 million, of which 277 million would be international travelers. Those numbers will represent 89% and 90%, respectively, of the region’s 2019 figures.

Figures in the AACO Statistical Report for 2023 only go as far as the end of May. However, they show the shortfall in RPKs and ASKs compared to 2019 levels among the 36 AACO member airlines falling steadily from the start of the year. RPKs, for example, went from -10.8% in January to +5% in May. ASKs went from -16.1% in January to just -2% in May.

AACO members are expected to fully recover to 2019 levels in both RPKs and ASKs by the end of 2023.

SAUDI VISION

There was considerable focus on Saudi Arabia’s Vision 2030 project designed to diversify the country’s economy away from hydrocarbons. A session on Saudi Aviation Strategy reiterated the country’s goal of becoming the Middle East’s leading aviation sector, with targets of handling 330 million passengers and 4.5 million tonnes of cargo a year by 2030.

Unlike Abu Dhabi, Dubai and Qatar, however, Saudi Arabia does not intend to go down the route of becoming a connecting hub. The main focus will be on point-to-point traffic in both the passenger and freight sectors, with only 10% of passengers being transit, while slightly less than half of the proposed cargo throughput will be trans-shipment.

Saudi regulator GACA’s SVP-strategy and business intelligence Mohammad Al Khuraisi said that among other facets of the country’s aviation strategy, “We would like to have more low-cost carriers, for the obvious reasons of availability and affordability of fares.”

Saudi Arabia already has two LCCs: Saudi Group subsidiary flyadeal and privately owned flynas. GACA earlier this year called for expressions of interest in creating a new LCC based in the eastern city of Dammam and it is understood that at least four parties have come forward with bids.

Additionally, much of the country’s aviation infrastructure required upgrading, Al Khuraisi said, with existing airports being improved and new ones created, state-of-the-art cargo facilities being introduced, and service levels and passenger experience also a subject of focus.

The estimated capital expenditure required to create the new aviation sector would be in the order of $100 billion, Khuraisi said, with one-third coming from the public purse and the remainder from the private sector.

“If we achieve this, we will be the number one aviation sector in the Middle East,” he said.

Tourism is seen as a major plank in the Saudi Vision 2030 strategy, with leisure travel contributing 15% of GDP. Flagship projects will include the new King Salman International Airport in Riyadh, which will initially supplement, then subsume, the existing King Khalid International Airport that serves the capital today. The new airport is destined to have capacity to handle 120 million travelers by 2030 and 185 million by 2050, and the renewed King Abdulaziz International Airport serving Jeddah, the country’s main commercial hub, will have the capacity for 100 million passengers.

There will be significant investment at Neom and other airports in the northwest of the country, serving the vast new tourist resorts that are now starting to come online, while cargo villages are planned for Riyadh, Jeddah and Dammam.

On the airline side, Al Khuraisi pointed to the new flag carrier, Riyadh Air and the ongoing transformation of Saudia, which is making extensive efforts to upgrade its inflight experience and which will have an influx of new aircraftt over the next few years.

Additionally, GACA announced significant regulatory changes during the AACO conference. A new economic policy regime aims to boost the sector’s competitiveness, transparency and open it up to foreign investment. The measures include a relaxation on foreign ownership rules of airport operators, as a prelude to the privatization of Saudi airports; the removal of nationality-based requirements for Saudi airline CEOs and executive appointments; and minimum competition standards for ground service and cargo handling providers as the kingdom seeks to become a global cargo transit hub.

In terms of aviation sustainability, the region was in the spotlight at the end of the year as both the ICAO CAAF/3 sustainable aviation fuel conference and the COP28 climate change summit were held in Dubai.

At AACO, Emirates COO Adel Al Redha, Royal Air Maroc CEO Abdelhamid Addou, Royal Jordanian CEO Samer Majali and Riyadh Air CEO Tony Douglas said they believed that the airline industry’s 2050 carbon net zero goal was feasible, but difficult.

“We have no choice,” Addou said during a panel.

“The airlines are willing to play ball, if the rest of the world plays ball,” Majali said. “If governments and the world give incentives to produce [sustainable aviation] fuel, we will use it. Airlines are willing and able. Give us the tools.”

A poll of the audience showed that only 4% believed that the industry would fail to reach the net zero goal. The greatest number of respondents—40%—believed that airlines would achieve the target “but at a terrible cost,” indicating major expenditure for carriers and a potentially significant rise in fares.

Another area of focus for the region is how the war in Gaza might affect demand for air travel. At a media briefing in December, IATA director general Willie Walsh pointed out that data so far have not indicated any impact of the events in the Middle East on airlines in general, although they have affected some individual carriers.

That was also the consensus among airlines at the AACO meeting. With the exception of the few airlines such as Middle East Airlines in Lebanon and Royal Jordanian, both located in countries immediately adjacent to the warzone, carriers would be relatively little affected, although several executives said that they had seen cancellations to varying extents in bookings, particularly among tour groups.

Royal Air Maroc’s Addou, whose country suffered a major earthquake, noted, “We find that globally, travelers come back faster after natural disasters than after war or terrorism.”