Gulf air traffic rebounds but fares still high

November 5, 2024, 1:29 PM

Passengers in Terminal 3 at Dubai Airport. The UAE and Saudi Arabia reported respective air traffic growth of 39 percent and 30 percent

UAE and Saudi lead Gulf growth
Mena traffic volumes surge
Staff issues help push up fares

Air traffic in the Middle East and North Africa region has rebounded beyond pre-pandemic levels, with Saudi Arabia and the UAE marking the highest gains in volume.

Traffic up to the second quarter of 2024 has also surpassed levels seen before 2020, according to a study by Airports Council International (ACI).

Bahrain (+24 percent), Qatar (+27 percent), Saudi Arabia (+30 percent), and the United Arab Emirates (+39 percent) have experienced robust growth, according to ACI’s study.

Despite this recovery, international airfares in some countries remain elevated. In the UAE, fares increased by 22 percent, while in Oman they rose 10 percent.

“Airfares result from a complex pricing system set by airlines, influenced by demand and supply, price elasticity, competition on any given route,” said Stefano Baronci, director general of ACI Asia-Pacific and Middle East.

“For example, routes that are reliant on a single airline saw fare increases of over 25 percent, while those with steady competition experienced only about a 10 percent rise.”

Baronci also explained that, while airport fees did increase by 6 percent for international flights, they were not a key driver in the price increase, and instead cited fuel prices and inflation.

John Grant, partner at UK consultancy Midas Aviation and an AGBI columnist, said that a number of additional factors are weighing on the industry and forcing up prices.

“Air fares are higher because while traffic is back to pre-pandemic levels, capacity isn’t quite there as airlines grapple with the supply chain challenges of the industry, ranging from Boeing’s delivery and production issues, to the Airbus issues on the Pratt & Whitney engines used by most carriers, to licenced engineers and maintenance facilities,” Grant said.

He cited Emirates as an example, which he said will still operate 7 percent fewer flights this coming winter than in the winter of 2018-2019.

Operating costs have also increased. A shortage of pilots and cabin staff is forcing up salaries a “considerable amount” for airlines that want to stay competitive.

“United Airlines gave their pilots a 30 percent increase two years ago and everyone had to follow to varying degrees; the ripple effect is seen in all markets,” said Grant.

According to the International Air Travel Association (IATA), Middle Eastern carriers reported a 4.4 percent year-on-year increase in demand for air travel. Capacity increased 4.6 percent year on year and the load factor was 81.4 percent — in line with the previous year.

Demand is surging for regional air freight, too. Total demand for Middle Eastern freight carriers, measured in cargo tonne-kilometres (CTKs), rose by 15.6 percent compared to September 2023 levels, marking the 14th consecutive month of growth, according to IATA.

Part of this rise is due to geopolitics and conflict in the Middle East. Attacks on shipping in the Red Sea by Houthi rebels have resulted in more than a 50 percent rise in air cargo shipments to Saudi Arabia.

The kingdom’s airports are expected to process more than a million tonnes of air cargo in 2024 for the first time. A total of 1.2 million tonnes is anticipated by the end of the year, officials say.

“Demand for air cargo is always seen as a bellwether for global trade and politics,” said Grant.

“In this case, political tensions in some parts of the world have seen a downturn in shipping demand and a move to cargo for some time sensitive products that would perhaps have normally shipped by sea to air as the holiday period looms.”

Suez Canal revenues have fallen between 50 and 60 percent, or $6 billion, in the first eight months of this year, providing an opportunity for regional airlines to step in.

“Such short-term changes provide opportunistic revenues for airlines and specialist cargo airlines,” added Grant.