GCC nations are steering their economies towards diversification. Boosting the number of foreign visitors—and, thus, commercial airline passengers—is a key aspect of these strategies. The goal? Allowing their economies to reach new skies.
The aviation sector was, undoubtedly, one of the most affected by the 2020 pandemic. Global airlines lost a combined $140 billion that year, according to the International Air Transport Association (IATA). Four years later, the agency expects profits to reach over $23 billion in a remarkable turnaround. In the GCC region, the aviation infrastructure market size is estimated to have reached $125 billion in 2023 and has been predicted to grow to $158.31 billion by 2029, according to Mordor Intelligence. It is a sector with great potential for growth, and one that investors are avidly watching.
GCC snapshot
Once a technical stop on the journey to Asia, the Middle East is now a top global destination. Since the start of the century, the region’s aviation sector has experienced astounding growth, with the fastest-growing country markets including Qatar, which showcases an average annual growth rate of 12.5%, United Arab Emirates (9.3%) and Saudi Arabia (6.5%), as per OAG data.
The growth in air passenger traffic in the Middle East, between 2012 and 2032 is likely to outperform that across all other regions, according to Alpen Capital, and the commercial airline fleet is set to grow by 51%, from 1,472 to 2,227 aircraft by 2034, Oliver Wyman predicted.
The growth in air passenger traffic in the Middle East is likely to outperform all other regions
“The aviation industry has played a very important role in the growth of the Middle East region,” said André Martins, Partner and the Head of the Transportation, Services and Operations Practices for Oliver Wyman in India, the Middle East and Africa. “The well-established players are continuously revamping their commercial models and operations in order to be ready for waves of growth.”
Within the Middle East, two countries have emerged as leaders in aviation: Saudi Arabia and the UAE, albeit with very different market conditions.
Currently, 45% of Saudi Arabia´s seats (33.6 million) are operated on domestic services, the UAE market is at 100% international capacity, OAG reports. Collectively these two country markets account for 61% of all airline capacity in the region. Add Qatar and the three are responsible for nearly three-quarters of all capacity in the region, which they plan to expand with investments such as the Public Investment Fund (PIF) promotion of the Riyadh Air launch and its backing of the new aircraft lessor AviLease. In May, the Saudia Group announced the largest aircraft deal in the Kingdom’s aviation history, encompassing 105 confirmed aircraft.
“IATA figures for last year showed a 14.2% year-on-year increase in demand for airlines in the Middle East and that buoyant market shows no signs of abating,” Mr. Adam Boukadida, Chief Financial Officer at Riyadh Air, told Finance Middle East.
“With that in mind, Riyadh Air’s launch in 2025 means we’ll be entering a rising demand-driven national market – a huge advantage for Riyadh Air’s ambitious expansion plan. When we launch, we won’t be competing for other airline’s passengers, we’ll be building traffic from Riyadh, a G20 City, which is growing in global importance.”
Market leaders
Airline initial public offerings (IPOs) are rare—but investors are keeping an eye on the Middle East. Saudi Arabia’s low-cost airline Flynas has confirmed its intention to list its shares on Tadawul this year, amid a boom in initial public offerings in the country. Meanwhile, Bloomberg has reported rumours of discussions regarding the possibility of an Etihad Airways IPO. Moreover, during the 2024 Arabian Travel Market conference taking place in May, HH Sheikh Ahmed bin Saeed Al Maktoum, President of the Dubai Civil Aviation Authority, CEO and founder of the Emirates Group answered a question regarding a potential Emirates IPO, stressing that, should it take place, “it will be a big success”.
Airline profitability in the Middle East is expected to top $3.8 billion in 2024, up 22.5%
Meanwhile, although discussions regarding a Qatar Airways IPO have been present for over a decade, the company’s CEO, Akbar Al Baker, told a news conference that those who wanted to invest in the airline “will have to wait until the end of the decade”, Reuters reported.
The main motivation behind investor’s high interest in GCC airline equities is their positive financial performance. Qatar Airways’ latest financial results reported net profits of QAR 6.1 billion ($1.7 billion), while Emirates achieved a profit of AED18.7 billion ($5.1 billion), up 71% year-on-year. Overall, airline profitability in the Middle East is expected to top $3.8 billion in 2024, up 22.5% from the previous year’s $3.1 billion, according to a new forecast by IATA.
A supply problem
Despite the continued growth of the sector in the post-pandemic economy, the commercial travel industry faces a significant challenge. Namely, significant supply constraints.
Currently, there are only two major commercial aircraft manufacturers: Boeing and Airbus. Both of them are facing supply chain constraints. Boeing, in particular, has recently received major backlash, following an incident in which the side of an Alaska Airlines 737 Max-9 aircraft blew out mid-flight. Concerns about the company’s quality control procedures have prompted an investigation from the US Department of Justice and the Federal Aviation Administration. In addition, Airbus is also facing persistent manufacturing delays, which have affected GCC airlines including Emirates and Qatar Airways.
Deliveries of commercial aircraft were 7.4% lower year-on-year between January and April 2024
“The increasing divergence between the rate of aircraft deliveries and the number of backlog orders makes clear that this growing, prosperous sector is being held back from its full economic potential,” said Aimie Stone, chief economist at ADS Group, said in a public statement. “The supply chain in the aerospace sector is long and complex, and any production or regulatory issues can cause significant delays in aircraft production, slowing delivery rates.”
Deliveries of commercial aircraft were 7.4% lower year-on-year between January and April 2024. During this period, approximately 312 commercial aircraft were delivered, ADS Group reported. The latest figures also reveal a 17.6% increase in the order backlog, from 13,401 to 15,753. According to a McKinsey & Company report, it would take 13 years to clear this backlog, production rates remain the same as those of 2023. If the sector is to continue propelling forward, the robustification of the supply chains is an absolute must.
Embracing change
The aviation sector worldwide is growing, but also changing. In the post-Covid era, customers are increasingly demanding more technology-driven and sustainable travel experiences—and airlines are taking note.
In an increasingly environmentally conscious industry, sustainable aviation fuel (SAF) has emerged as a key player. Globally, the sustainable aviation fuel market is expected to reach about $14.8 billion by 2032, according to Precedence Research. The UAE’s Etihad Airways first tested SAF in October last year on the Tokyo-Abu Dhabi route. In January, Emirates Airlines successfully used 100% SAF to power one of two GE90 jet engines in a Boeing 777-300ER that flew around Dubai’s coastline. The hour-long flight was a fundamental step in the industry’s journey towards net-zero operations.
Dubai has recently unveiled a $35-billion plan to create the largest airport in the world
“This flight is a milestone moment for Emirates and a positive step for our industry as we work collectively to address one of our biggest challenges–reducing our carbon footprint,” said Emirates’ Chief Operating Officer Adel Al Redha in a statement released at the time of the event. In addition to SAF, airlines like Etihad are also investing in new technologies for multiple use cases. The applications of artificial intelligence (AI) can impact autopilot systems, predictive maintenance, route optimisation, air traffic management, cockpit assistance, and even talent management.
“By leveraging technology effectively, organisations can position themselves as market leaders, ensuring sustainable growth and operational excellence,” explained Dr Nadia Bastaki, Chief People & Corporate Affairs Officer at Etihad Airways, told KPMG as part of its Future of Work report.
“Riyadh Air is a new entrant airline with no legacy issues to hinder or hold us back,” Boukadida added. “We are coming to the market with the most modern mindset of a digital-native airline. We have a clean slate and will use innovation to change the user experience of our passengers.”
Infinity and beyond
GCC nations have ambitious targets, which include the commercial aviation sector. Saudi Arabia has plans to expand the number of destinations to over 250, boosting cargo capacity to 4.5 million tons annually, and increasing passenger traffic to 330 million by 2030. To achieve this, the Kingdom is working on a $7.2 billion expansion plan for the King Salman International Airport in Riyadh, able to accommodate 120 million passengers by 2030 and 185 million by 2050, according to Saudi Arabian officials.
The UAE is also building new air terminals. The emirate has recently unveiled a $35-billion plan to create the largest airport in the world, the Al Maktoum International Airport. Official estimates predict that the new airport will be able to handle as many as 150 million passengers per year. “The new airport, which will ultimately be over five times the size of Dubai International, will prepare the ground for the next 40 years of anticipated growth in Dubai’s aviation sector,” said HH Sheikh Ahmed.
The Middle East aviation sector is undoubtedly poised for great profitability, and the region’s tourism strategies will propel it to new heights. However, the increased customer demands for sustainable fuels, and the challenges present in the supply chains, will play a major role in the months to come. Yet, the sector is determined to embrace change to reach new—and higher—skies.