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Maxjet Airways ceased operations in December last year as fuel prices soared - leaving jets on tarmacs.

The cyclical nature of air travel also served to clip Silverjet's wings. It is widely accepted that the business class market is particularly time and day-of-the-week sensitive - demand for business class services drops dramatically mid-week and Saturdays.

Without a strong economy to counterbalance infrequent demand, Silverjet and its peers were left vulnerable to tickets sales variations that were rarely influenced by price. Indeed, the airline discovered that several two-for-one deals and special offers launched in this year failed to improve the carrier's prospects.

For most analysts, Middle East budget carriers operating at the opposite end of the air travel market are exposed to similar risks. "Budget airlines are at completely the other end of the spectrum because they rely on high load factors, and variable prices to get those high load factors," Griffiths says.

"The budget airline business model is far more resilient than the business class-only model, but whether it'll be resilient enough to make the whole thing work, we'll have to see."

There are six low-cost carriers operating from bases across the GCC, including Jazeera Airways, Bahrain Air and Air Arabia. While low-cost carriers still only account for 2% of passengers in the Middle East, the industry is booming and airlines are adding more scheduled flights to cope with demand.

However, Hemant Patel, a senior aviation analyst at Indian financial services firm Enam Securities, warns that budget carriers are particularly prone to fuel price fluctuations. Moreover, price increases are likely to hit passenger numbers among expatriates from the Indian Subcontinent, a key demographic within the Gulf.

"Budget airlines will be very much affected by rising oil costs because they are targeting customers which are in the value segment and are extremely price sensitive," he says. "Those looking at a budget airline will think about deferring travel plans if the cost of travel is going to be very heavy, and will take fewer trips in a year."

According to Lehman Brothers, crude oil prices have risen from US$100 per barrel to US$148 since the start of Q2 2008 - a huge increase from the average $73 price last year. "We saw the cost of oil rise to US$126 billion for the airline industry last year, which is just under 30% of airlines' operating costs," IATA's Pearce says.

According to IATA, for every dollar that crude oil rises, the industry's costs increase US$1.6 billion. It predicts $6.1 billion losses this year if oil prices remain at US$135 a barrel. The aviation body also recently revised its industry financial forecast for 2008 to US$2.3 billion losses - a US$6.8 billion swing from the previously-forecast industry profit of US$4.5 billion based on a US$86 average oil price.

"Our fleet plans are constantly under review because of the fuel issue," says Sama's Andrew Cowen. The Riyadh-based carrier's CEO adds: "The market has great potential and we intend to have a very significant share of that market, and to be a significant player. However, unless we see compensatory cost reductions elsewhere, oil at US$135 makes a lot more destinations more marginal.

"Fuel represents about 35% to 40% of our costs - and we are a low-fares airline that relies on large volumes of passengers, each one of whom represents quite a small profit - so fuel going up by even a little can wipe out your profits on a whole swathe of routes."

Sama, which launched in March 2007 and operates to 23 destinations, was founded by Investment Enterprises Ltd, chaired by HRH Prince Bandar Bin Khalid al Faisal. Its initial investors number 30 major Saudi private and institutional funders, including Olayan Financial Co and Xenel Industries Ltd. But while the shareholder group is prestigious, Sama hasn't been able to count on the Saudi government's unqualified support - to its considerable cost.

"[State-owned carrier] Saudia gets an 80% discount on fuel which we don't get," Cowen says. "That is not a level playing field and we're really pressing the policy decision-makers to really resolve that manifest unfairness. Our shareholders are saying, and quite rightly so, that this is not right."

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