Middle East

Growth strategies

At the crossroads between Asia, Africa, and Europe, the Middle East is well positioned to compete for traffic connecting these regions. Total airline capacity in the Middle East grew 11 percent in 2013, led by Emirates, Qatar Airways, Etihad Airways, Saudia, and the region's low-cost carriers (LCC).

Booming demand in neighboring regions, plus local demand development, work together to drive the Middle East market. Hub aggregation is a key to enabling growth, because the region's central hubs allow carriers to serve hundreds of routes that have insufficient traffic to warrant point-to-point service. Alliances, partnerships, and equity stakes in airlines of neighboring regions also feed the Middle East hubs.

Business model innovation supports growth in the region as LCCs reduce short-haul fares, set up cross-border subsidiaries, and institute mobile booking portals to improve access to air transport services. Some LCCs are expanding their networks into previously underserved areas, such as the Commonwealth of Independent States. The LCC business model is evolving as carriers such as flydubai develop hybrid concepts that combine low-fare operations with business-class offerings.

Liberalization advances

There remains significant untapped potential for liberalization within the region. The Kingdom of Saudi Arabia is taking steps toward opening its underserved domestic markets. Two new airlines are expected to begin operations in 2014: SaudiGulf, an independent based in Dammam, and Al Maha, an offshoot of Qatar Airways. State-owned Saudia is expected to be privatized, although perhaps not quickly. Commentators note the opportunity for the relaxation of price controls on domestic flights in Saudi Arabia, which would support industry health and service quality.

Infrastructure and airspace development

Infrastructure investment tends to target new runways and terminals, focusing on the region's main hubs. New airports opened in Jebel Ali (Dubai) and Doha, runways were refurbished and upgraded at Dubai International, and construction started on a new terminal at Abu Dhabi International. Airport expansion is also underway at King Abdulaziz International (Jeddah) and King Khalid International (Riyadh).

Other challenges remain: Large sections of airspace remain under military control, reducing the airspace available for commercial traffic; and the region's air traffic control (ATC) systems are not centralized, leaving operators to contend with a patchwork of rules, agencies, and processes. Regional authorities are working to address these needs, and recent discussions of ATC coordination between the Gulf Cooperation Council countries and their neighbors serve as a sign of progress.