Kuwait's aviation sector takes off

Kuwait's fasten seat belt sign is still lit, as the country's aviation sector continues its ascent toward higher growth and bigger profits. The emirate is at the leading edge of the world's fastest growing regional aviation market, and while it is experiencing some turbulence, the planned multi-billion dollar expansion of its international airport and the dramatic growth of Jazeera Airways suggest that it is still climbing to its cruising altitude.

The centrepiece of Kuwait's expansion plan is a $2.1 billion upgrade of Kuwait International Airport. An integral part of the government's drive to establish the country as a regional financial and trade hub, the project will expand the airport's existing two runways and build a third, as well as increasing fuel storage facilities. A private aviation terminal and a VIP lounge are also expected to be completed soon. Altogether, the projects will double the airport's capacity from 5 million passengers to nearly 10 million.

While the airport expansion is the focus of the government's bid to boost the emirate's aviation industry, the Directorate General of Civil Aviation has begun pursuing an increasing number of bi-lateral open skies agreements to bolster the international travel and tourism market. Last month, Kuwait concluded a new memorandum of understanding (MOU) with Turkish civil aviation authorities. The MOU increases the number of flights between the two countries and follows on the heels of an open skies treaty signed last year with the US.

Kuwait is also home to the Middle East's first wholly private commercial air carrier, Jazeera Airways, which recently finished its first full financial year of operation, registering a profit of $8.7 million and revenues of over $74.5 million. Unlike most of the older regional carriers Jazeera - which was established in 2004 - is neither owned nor subsidised by any national government. It has evolved over the past two years from a small start-up with a fleet of two aircraft servicing five destinations, to a recognisable brand covering 20 destinations with a fleet that will soon include ten Airbus A320s. Marwan Marzouq Boodai, CEO of Jazeera Airways, says: "We are committed to raising the bar and heralding the future of the aviation industry in the Middle East as it moves into the private sector."

According to Ahmad Alzabin, chairman and CEO of Kuwait-based Aviation Leasing and Finance Company, "Airlines like Jazeera have been creating their own markets rather than poaching passengers from other airlines, and this has stimulated increases in passenger traffic at Kuwait Airport."

Indeed, Jazeera is by no means the only airline to take advantage of the increasing privatisation of the region's carriers. If everything goes according to plan, another private no-frills carrier, Wataniya Airways, should make its debut in Kuwait later this year. Wataniya, which was founded in 2005 by a consortium of Kuwaiti shareholders, will eventually begin operations to regional destinations.

The outlook is not all rosy for the Kuwait's carriers, however. Kuwait Airways Corporation, the parent company of Kuwait's national carrier, posted a loss of over $80 million last year, for the 15th time in the past 16 years. Its losses since the 1990 invasion of Kuwait (when it lost most of its fleet and suffered a sharp drop in revenue) total nearly $1.8 billion. Kuwait Airways has been scheduled for privatisation for over a year now, with some sources estimating a 70% stake will eventually be floated, but delays appear to have stalled the project for the time being.

The Arab region has shown some of the fastest traffic growth in the world. Six of the world's top 20 growth markets for the aviation sector are located in the Middle East and in 2006 - for the fourth year in a row - the Middle East led the world's traffic growth, reaching nearly 13% in inter-regional traffic and 6% for intra-regional traffic. Although cargo traffic slowed somewhat, passenger traffic in the Gulf Co-operation Council (GCC) region grew by over 8% in the first quarter of 2007 compared to the first quarter of 2006; between the GCC and other regions, traffic grew by 11.3% over 2006. Arab airlines purchased over 38 new aircraft this year, 80% of which were aimed at international or long-haul routes. By 2025, there will be an estimated 1100 aircraft based in the region. The fast pace of expansion means that the region's carriers have one of the youngest fleets in the world. According to the Arab Air Carriers Organisation, the average age of aircraft in the region is 9.08 years.

The region's high market growth does not appear to be a statistical anomaly. Given the GCC's rapidly-expanding tourism sector, its high liquidity and economic boom, its lack of viable transportation alternatives and its fast rate of population growth, the gains made by the aviation sector look to be sustainable. According to Global Futures and Foresight, a London-based think tank, with the over $25 billion governments are pouring into their airport expansion projects, capacity in the region is expected to reach over 300 million passengers by 2025.

Jason J. Nash is Head of Research at the Oxford Business Group
(www.oxfordbusinessgroup.com)